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$475 million in 2014 to a profit of US$880 million in 2015. This positive trend continued into 2016, with economic profit remaining strong at US$852 million. However, 2017 saw a return to negative economic profit, registering a loss of US$185 million. The final year of the period, 2018, showed a substantial recovery, with economic profit reaching US$1,481 million.

NOPAT Analysis

NOPAT decreased substantially from US$2,846 million in 2014 to US$1,944 million in 2015. It remained relatively consistent between 2015 and 2016, before declining sharply to US$821 million in 2017. A significant increase was then observed in 2018, with NOPAT rising to 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 then increased to US$7,597 million in 2018, but remained below the level observed in 2014.

Cost of Capital Stability

The cost of capital remained within a narrow range throughout the period, fluctuating between 14.11% and 15.87%. This relative stability suggests that changes in economic profit were primarily driven by variations in NOPAT and invested capital, rather than shifts in the company’s cost of funding.

The substantial swings in economic profit appear closely linked to the concurrent changes in NOPAT and invested capital. The strong economic profit in 2015-2016 coincided with a period of improved NOPAT following the initial decline, and a relatively stable invested capital base. The return to negative economic profit in 2017 was likely due to the significant drop in NOPAT, despite a moderate decrease in invested capital. The strong performance 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 economic spread ratio exhibited significant fluctuations between 2014 and 2018. Initially negative, it demonstrated substantial improvement before declining again, ultimately reaching a peak in the final year of the observed period. This analysis details the observed trends in the economic spread ratio, alongside its relationship to economic profit and invested capital.

Economic Spread Ratio Trend

In 2014, the economic spread ratio was -2.27%, indicating that the company’s return on invested capital was less than its cost of capital. A marked positive shift occurred in 2015, with the ratio increasing to 12.01%. This positive trend continued into 2016, reaching 11.08%. However, the ratio turned negative again in 2017, falling to -2.67%. The most substantial change occurred in 2018, with the ratio rising sharply to 19.50%, representing the highest value within the observed timeframe.

Relationship to Economic Profit

The economic spread ratio’s movements correlate strongly with economic profit. Negative economic spread ratios in 2014 and 2017 corresponded with negative economic profits of -475 and -185 million US dollars, respectively. Conversely, positive economic spread ratios in 2015, 2016, and 2018 aligned with positive economic profits of 880, 852, and 1,481 million US dollars, respectively. This suggests a direct relationship between the company’s ability to generate returns exceeding its cost of capital and its overall economic profit.

Relationship to Invested Capital

Invested capital decreased significantly from 2014 to 2015 (from 20,937 to 7,328 million US dollars) and remained relatively stable between 2015 and 2018, fluctuating between 6,903 and 7,687 million US dollars. The substantial increase in the economic spread ratio in 2015, despite the large decrease in invested capital, suggests improved efficiency in capital utilization. The further increase in 2018, with a similar level of invested capital, indicates a continued enhancement in the return generated from each dollar invested.

Overall, the period demonstrates a volatile but ultimately improving trend in the economic spread ratio. The company experienced periods of value destruction followed by periods of significant value creation, culminating in a strong performance in 2018. The observed correlation between the economic spread ratio, economic profit, and invested capital suggests that changes in capital efficiency and profitability are key drivers of the company’s economic performance.

The economic profit margin exhibited significant fluctuations between 2014 and 2018. Initial observations reveal a period of negative economic profit followed by substantial improvement, then a subsequent decline before a strong recovery.

Economic Profit Margin Trend

In 2014, the economic profit margin was negative at -2.65%. 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 10.24%, signifying a substantial improvement in profitability relative to the capital employed. This positive trend continued into 2016, with a margin of 9.48%, although at a slightly reduced rate of growth.

However, 2017 saw a return to negative economic profit margin, registering at -1.93%. This suggests a weakening in the company’s ability to generate returns exceeding its cost of capital. The final period analyzed, 2018, demonstrated a strong rebound, with the economic profit margin reaching 13.74%, the highest value observed within the timeframe. This represents a significant improvement in value creation.

The economic profit margin’s movement appears closely linked to the fluctuations in economic profit. The years with positive economic profit directly correlate with positive economic profit margins, and vice versa. The adjusted net revenues also show an overall upward trend, but the economic profit margin’s volatility suggests that revenue growth alone does not fully explain the observed performance. Changes in the cost of capital or capital employed likely played a significant role in these fluctuations.

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, indicates that cost of capital or capital employed increased at a faster rate than revenue growth, eroding profitability. The substantial margin improvement in 2018, concurrent with continued revenue growth, suggests improved efficiency or a more favorable capital structure.

Overall, the period under review demonstrates a dynamic financial performance characterized by significant swings in economic profitability. The company experienced periods of value creation and value destruction, with 2018 representing the most successful year in terms of economic profit margin.