Cyber Attack Responsible For Ebay Inc (NASDAQ: EBAY)’s Poor Q2 Performance

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By Ross Schwartz on July 22, 2014 Company

Earlier this week, eBay Inc (NASDAQ: EBAY) reported it’s second quarter earnings, and the results failed to meet investors’ high hopes. The online auction site earned $0.69 per share, and totaled $4.37 billion in revenue. Analysts hoped for $0.68 per share.

The cause of this poor Q2 performance, according to analysts, is due to the cyber attack that occurred in May of this year. eBay has reported that the Marketplace activity has not yet returned to the level it experienced prior to the attack. However, they point out the positive result in eBay’s Payments division as a silver lining.

The Cyber Attack’s Effect On Ebay’s Marketplace

On July 17^th, a report was released by Shelby Seyrafi, an analyst with FBN Securities. In the report, Seyrafi maintained eBay’s rating for its sector performance and its target price per share of $60.

It is clear that the online auction company experienced significant negative impact from the cyber attack, and saw disruption of its Marketplace business. Not including foreign exchange rates, the company’s revenue grew only 6% year over year. That figure is only half of the growth in the company’s past two quarters. Ebay has also reported that the majority of its usual buyers have not yet returned to their prior activity levels.

Another key factor in eBay’s Marketplace revenue and activity is that Google Inc (NASDAQ: GOOG) (GOOGL) changes its search engine algorithms. This meant that eBay’s webpages for various products that appeared in Google’s search results were pushed to the bottom of the list of results.

eBay’s Silver Lining – Payment Division

The good thing about eBay’s second quarter report was the 20% year over year growth in its Payment division. The total payment came out to be $55 billion, which was roughly 29% higher than consensus predictions. The total payment from Merchant Services was $40 billion, a 35% increase. This growth is impressive and surprising, considering that David Marcus, head of eBay Payments division, left the company for Facebook (NASDAQ: FB) in the middle of the second quarter.

eBay’s Expectations For The Third Quarter

The company estimates revenue to fall between $4.3 billion and $4.4 billion. This range is a bit higher than analysts’ consensus of $4.2 billion. eBay guided for non GAAP revenue to range between $0.65 per share and $0.67 per share, while consensus predicts $0.71 per share.

Catching Up To Industry Leaders

For the past few years, eBay has fallen behind companies such as Amazon Inc (NASDAQ: AMZN) in the online retail market. In an effort to catch up to the king of online retail, eBay has been offering services that can match those of Amazon.

The growth eBay sees is mostly led by Paypal, its payment processing system. The business, headed by Elon Musk, has found and brought users to the online auction site more than any other eBay affiliation.

eBay has managed to grow and produce better than expected results mainly due to the type of market it’s in. The ecommerce space is slated for massive growth, and almost every company in this market benefits from the growth of the market.

However, with the impending entry of Google Inc (NASDAQ: GOOG) (GOOGL), Apple (NASDAQ: AAPL), and Facebook (NASDAQ: FB) in the ecommerce market, eBay may not have what it takes to hold its ground in the market. The company needs further expansion of its services, increase its brand position, and better management of its funds.