eBay Inc. (NASDAQ:EBAY)

The period under review demonstrates significant fluctuations in economic profit. Net operating profit after taxes (NOPAT) and invested capital experienced considerable volatility, impacting overall economic performance. The cost of capital remained relatively stable throughout the analyzed timeframe.

Economic Profit Trend

Economic profit exhibited a marked shift from a loss of US$995 million in 2014 to a profit of US$715 million in 2015. This positive trend continued into 2016, with economic profit reaching US$682 million. However, 2017 saw a return to negative economic profit, registering a loss of US$339 million. A substantial recovery occurred in 2018, with economic profit increasing to US$1,319 million.

NOPAT Analysis

NOPAT decreased from US$2,846 million in 2014 to US$1,944 million in 2015, representing a substantial decline. A slight increase was observed in 2016, reaching US$1,955 million, but a significant drop occurred in 2017, with NOPAT falling to US$821 million. NOPAT rebounded strongly in 2018, reaching US$2,553 million.

Invested Capital Analysis

Invested capital experienced a dramatic decrease from US$20,937 million in 2014 to US$7,328 million in 2015. It showed a modest increase in 2016 to US$7,687 million, followed by a further decrease to US$6,903 million in 2017. Invested capital increased again in 2018, reaching US$7,597 million, but remained below the 2014 level.

Cost of Capital Stability

The cost of capital remained relatively consistent throughout the period, fluctuating between 16.24% and 18.35%. In 2014, it was 18.35%, decreasing to 16.77% in 2015, 16.56% in 2016, increasing to 16.81% in 2017, and finally decreasing to 16.24% in 2018. This stability suggests that changes in economic profit were primarily driven by variations in NOPAT and invested capital, rather than shifts in the cost of funding.

The significant swings in economic profit correlate with the changes in both NOPAT and invested capital. The substantial decrease in invested capital in 2015 likely contributed to the shift from a loss to a profit in that year, despite the decline in NOPAT. The subsequent decline in NOPAT in 2017, coupled with a further decrease in invested capital, resulted in a negative economic profit. The strong recovery in 2018 was driven by a substantial increase in NOPAT.

The financial data reveals notable fluctuations in profitability over the five-year period.

Net Income (Loss)

The net income shows significant volatility. It increased markedly from 46 million US dollars in 2014 to a peak of 7,266 million US dollars in 2016, indicating strong profitability during this period. However, there was a sharp decline in 2017, with a net loss of 1,016 million US dollars, signaling a challenging financial year. In 2018, the net income rebounded to a positive 2,530 million US dollars, suggesting a recovery but not returning to the peak levels observed in 2016.

Net Operating Profit After Taxes (NOPAT)

NOPAT demonstrated a declining trend from 2,846 million US dollars in 2014 to 821 million US dollars in 2017, reflecting a gradual erosion of operating profitability over these years. Nonetheless, 2018 saw a significant improvement to 2,553 million US dollars, nearly returning to the level seen in 2014. This recovery in NOPAT suggests enhanced operational efficiency or better cost management in the last year of the period.

Overall, the data illustrates a period of growth followed by a downturn and partial recovery. The volatility in net income is more pronounced than in NOPAT, which may indicate that factors beyond core operations—such as extraordinary items or financial costs—impacted net profitability, particularly in 2017. The improvements in 2018 across both indicators suggest a positive shift in financial performance.

Provision (benefit) for income taxes

The provision for income taxes exhibited significant volatility over the period analyzed. In 2014, the provision was substantially positive, amounting to 3,485 million US dollars, indicating a considerable tax expense. This value sharply decreased to 459 million US dollars in 2015. In 2016, the provision turned negative to -3,634 million US dollars, signaling a tax benefit rather than an expense. However, in 2017, the provision reverted to a positive figure of 3,288 million US dollars before dropping again to 190 million US dollars in 2018. This pattern suggests considerable fluctuations in taxable income or changes in tax regulations affecting the reported tax expense or benefit.

Cash operating taxes

Cash operating taxes demonstrated a generally declining trend from 2014 through 2016, starting at 659 million US dollars in 2014 and slightly decreasing to 505 million US dollars in 2016. A notable spike occurred in 2017, with cash operating taxes rising sharply to 1,600 million US dollars, which is more than a threefold increase compared to the previous year. This sudden increase might reflect a higher cash tax payment or changes in tax payment timing. In 2018, cash operating taxes fell substantially to 378 million US dollars. Overall, the data indicate variability in the company's cash tax payments, with the exceptional increase in 2017 representing a significant deviation from prior and subsequent years.

Total reported debt & leases

The total reported debt and leases showed fluctuations over the analyzed period. Starting at 8,046 million USD at the end of 2014, the figure decreased to 6,985 million USD in 2015. However, it then increased sharply to 9,172 million USD in 2016 and further rose to a peak of 10,296 million USD in 2017. In 2018, the total reported debt and leases slightly declined to 9,746 million USD. Overall, the trend suggests a general increase in debt levels, especially from 2015 to 2017, followed by a minor reduction in 2018.

Stockholders’ equity

Stockholders’ equity experienced significant volatility during the period. It started at a relatively high level of 19,906 million USD in 2014, then declined substantially to 6,576 million USD in 2015. There was a partial recovery in 2016, with equity rising to 10,539 million USD, but this was not sustained in subsequent years. Equity decreased again to 8,063 million USD in 2017 and further declined to 6,281 million USD by the end of 2018. The overall pattern indicates considerable erosion of equity value compared to the initial year, with notable declines after 2016.

Invested capital

Invested capital mirrored the general downward trend observed in stockholders’ equity, beginning at 20,937 million USD in 2014 and decreasing sharply to 7,328 million USD by 2015. From 2015 to 2018, invested capital remained relatively stable but low, fluctuating around the 6,900 to 7,600 million USD range. This indicates a significant contraction in the invested capital base post-2014, with minimal recovery through to the final year observed.

Summary

The overall financial pattern presents a scenario of increasing leverage as evidenced by rising total reported debt after 2015, contrasted against declining stockholders’ equity and reduced invested capital. The significant drop in equity and invested capital in 2015 could suggest a major restructuring, asset reduction, or other strategic adjustments affecting the capital structure. The leverage increase may indicate a higher reliance on debt financing over the latter years, potentially affecting the company's financial stability and risk profile.

The period under review demonstrates significant fluctuations in economic performance. Economic profit exhibited volatility, transitioning from a substantial loss in 2014 to positive values in subsequent years, before declining again in 2017 and recovering strongly in 2018. Invested capital decreased considerably from 2014 to 2015, then remained relatively stable with minor variations through 2018. The economic spread ratio mirrors the profit trend, showing a marked improvement from negative territory to double-digit positive values, followed by a return to negative figures and a subsequent substantial increase.

Economic Profit

Economic profit began at a loss of US$995 million in 2014. A significant turnaround occurred in 2015, with economic profit reaching US$715 million. This positive trend continued into 2016, with a profit of US$682 million. However, 2017 saw a return to a loss of US$339 million. The final year of the period, 2018, showed a substantial increase in economic profit, reaching US$1,319 million.

Invested Capital

Invested capital experienced a substantial decrease from US$20,937 million in 2014 to US$7,328 million in 2015. From 2015 through 2018, invested capital remained relatively consistent, fluctuating between US$6,903 million and US$7,687 million. The largest change occurred in the initial year, with subsequent years showing minimal variation.

Economic Spread Ratio

The economic spread ratio began at -4.75% in 2014, indicating a negative spread. This improved dramatically to 9.76% in 2015 and remained positive at 8.87% in 2016. A decline was observed in 2017, with the ratio falling to -4.91%. The final year, 2018, showed a significant increase to 17.37%, representing the highest value within the observed period.

The economic spread ratio’s movement closely follows the economic profit, suggesting a strong correlation between the return generated on invested capital and the cost of that capital. The substantial increase in the economic spread ratio in 2018, coupled with the high economic profit, indicates a period of particularly efficient capital allocation and strong financial performance.

The economic profit margin exhibited significant fluctuation between 2014 and 2018. Initial observations reveal a period of negative economic profit followed by substantial improvement, then a subsequent decline before culminating in a strong positive margin by the end of the period.

Economic Profit Margin Trend

In 2014, the economic profit margin was negative at -5.55%. This indicates that the company’s return on capital employed was less than its cost of capital. A dramatic shift occurred in 2015, with the margin increasing to a positive 8.32%, suggesting improved profitability and capital efficiency. This positive trend continued into 2016, albeit at a slightly reduced rate of 7.59%.

However, 2017 saw a return to negative territory, with the economic profit margin falling to -3.54%. This reversal suggests a weakening in the company’s ability to generate returns exceeding its cost of capital. The final year of the period, 2018, demonstrated a substantial recovery, with the economic profit margin reaching a high of 12.24%, indicating a significant improvement in value creation.

The economic profit margin’s movement appears closely linked to the fluctuations in economic profit. The negative margins in 2014 and 2017 correspond with negative economic profit values, while the positive margins in 2015, 2016, and 2018 align with positive economic profit. The adjusted net revenues also show an overall upward trend, but the economic profit margin demonstrates that revenue growth alone does not guarantee value creation; efficient capital allocation is also crucial.

Relationship to Adjusted Net Revenues

While adjusted net revenues increased from US$8,590 million in 2015 to US$10,779 million in 2018, the economic profit margin did not consistently increase alongside it. The decline in margin in 2017, despite rising revenues, highlights the importance of considering profitability relative to capital employed, rather than solely focusing on revenue figures.

The substantial increase in economic profit margin in 2018 warrants further investigation to understand the drivers behind this improvement. The volatility observed throughout the period suggests potential sensitivity to external factors or internal strategic shifts.