eBay Inc (EBAY)’s Q4 2014 Earnings Call Transcript

The second major work stream for us is positioning 2 great standalone companies. We believe the key criteria for success are: an operating agreement that provides strategic flexibility while preserving synergies and minimizing dis-synergies; a capital structure that provides each business a flexibly that enables its investment priorities; and creating 2 world-class boards of directors.
Now let me turn to guidance specifically and then I’ll provide an update on where we are on the separation process. We are projecting 2015 revenues of $18.6 billion to $19.1 billion, representing FX neutral growth of 7% to 10%. We expect FX to impact revenue by approximately $600 million or roughly 3 points of growth as the U.S. dollar has strengthened versus the euro, pound and the Australian dollar by 12%, 8% and 10%, respectively. We are projecting non-GAAP EPS of $3.05 to $3.15, up 3% to 7% versus 2014, with our non-GAAP effective tax rate stable in the 19% to 20% range. And we expect to generate greater than $4 billion in free cash flow for the year with Cap Ex of 8% to 10% of revenues.
We have a lot of moving pieces in 2015, so I wanted to provide a bit more transparency on what is driving or detracting from our non-GAAP EPS expectations for the year. There are 5 key drivers. As we mentioned earlier, we are reducing our global workforce by roughly 7%. This will result in a GAAP charge of approximately $100 million in the first quarter and generate savings in 2015 of more than $300 million across the company. But the savings will be reinvested to drive growth. Second, we will add approximately $1 billion to the top line in 2015. This top line growth, coupled with strong margins across our businesses, will generate $0.30 per share of earnings. Third, we repurchased $4.7 billion in shares of common stock in 2014. And our Board of Directors has approved an increase of our outstanding authorization by $2 billion, leaving $3 billion authorization remaining.

We plan to offset dilution from our comp base programs and continue to opportunistically reduce our share counts in 2015. This will add approximately $0.10 per share to EPS. Fourth, the strong dollar will have a large negative impact from a translation perspective and will create a headwind for cross-border trade growth. Translation, net of hedges, will negatively impact EPS by $0.10 to $0.15 per share in the year. And fifth, the dis-synergy costs associated with the separation will add approximately $200 million of on-going cost in 2015 or approximately $0.10 to $0.15 per share.
With that as context for eBay Inc.’s guidance and the drivers of EPS from 2014 to 2015, let me provide a little more context by business unit.

For PayPal, we expect 15% to 18% growth on an FX neutral basis. We have strong momentum in the core business. We are expanding credit both internationally and with small merchants, and we are extending our reach with Brain tree. Slower on-eBay growth and lower monetization from Brain tree and large merchants will partially offset the strong volume growth. For PayPal, we are expecting segment margins of 24% to 25%, up 1 to 2 points versus 2014. We are expecting transaction margin compression due to lower take rate and higher operating expenses as we invest in growth priorities. These will be offset by strong operating leverage and the benefits from our Q1 headcount reduction and anticipated gains on PayPal’s FX hedges.

For eBay, we expect FX neutral revenue growth between 0 and 5%, with the first half growth slower than the second half as we look to rebuild our active buyer base. We expect segment margins of 37% to 39%, flat versus 2014. We are taking actions to streamline our cost structure in the first quarter. And we’ll reinvest in product, sales and marketing while improving site security, stability and site speed. While growth is lower than we’d like, we’ll be disciplined in our approach and the business will generate strong cash flows.