eBay puzzles market with latest update

eBay had a relatively decent first quarter but managed to puzzle the market by announcing plans to repatriate a chunk of its cash held outside of the US.

In the three months ended 31^st March the company took revenue of $4.3bn – up 14% from the same period last year and broadly in line with expectations.

On a divisional basis, eBay’s businesses all posted good growth, but, PayPal remains a standout performer with a 19% growth in revenue at $1.85bn, having gained 5.8 million new active registered accounts in the period.

Here’s the puzzler

The company took a notable $3bn tax charge on $9bn of foreign-held cash (previously not subject to US tax).

That tax charge meant that eBay reported a loss of around $2.3bn (excluding the charge, it would’ve made $899m, up from $829 the previous year).

Now, given the theme we’ve seen over recent times, the move to bring back cash to the US (and dance to the tune of a hefty tax bill) is certainly not the norm.

Indeed, US companies with sizeable cash held overseas are either looking to embark on foreign acquisitions – latest M&A news flow points to Pfizer and General Electric as companies with possible intentions of making such a move.

Additionally, issuing new debt has also been used as alternative (think Apple). That move comes with a number of benefits; including the fact that interest paid would work out much cheaper than the potential tax bill from repatriation.

So, it’s all very puzzling indeed: the non-specific phrase “greater US financial flexibility” was cited by eBay as the reason for the move.

eBay’s said to have denied an imminent announcement of a sizeable US acquisition, but, the sentiment here is that it’s not beyond the realms of possibility. And it would certainly go some way towards explaining things.

Meanwhile, the company’s guidance for the second quarter didn’t impress the market, with its EPS range coming in below expectations.

All of this has sent eBay’s shares declining (down 5% at time of writing), now trading around 14% below this year’s peak in last month.

But let’s not overlook the fact that the company’s businesses are still growing at a decent pace and eBay is by no means resting on its laurels – its efforts should continue to bear fruit in the long term.