Why EBay Stock Plummeted This Week

EBay (NASDAQ: EBAY) stock got hit hard in this week's trading despite a better-than-expected quarterly report from the company. The e-commerce specialist's share price sank 16.4% in the week.

EBay published its third-quarter results on Oct. 29 and reported sales and earnings for the period that outperformed Wall Street's forecasts. Unfortunately, the company showed some margin weakness in the quarter -- and its forward guidance wound up leading to big sell-offs.

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Q3 beats couldn't prevent sell-offs for EBay stock

EBay notched non-GAAP (adjusted) earnings per share (EPS) of $1.36 on revenue of $2.82 billion in Q3, beating the average Wall Street analyst estimate's call for per-share earnings of $1.33 on revenue of $2.73 billion. Sales were up roughly 9% year over year in the period, and adjusted EPS rose 14% compared to last year's quarter. The company's operating margin declined from 23.1% in last year's quarter to 20.4% in this year's period, and its adjusted operating margin declined from 27.2% to 27.1%.

What's next for EBay?

EBay actually issued better-than-expected sales guidance for Q4, with its target for sales between $2.83 billion and $2.89 billion coming in well ahead of the average Wall Street target for sales of $2.79 billion in the period. Unfortunately, the revenue guidance came with a pretty significant catch.

For Q4, EBay is guiding for adjusted EPS to be between $1.31 and $1.36. Meanwhile, the average analyst estimate had called for adjusted per-share earnings of $1.39. So, while the business expects to post strong sales this quarter, weakness for margins is causing investors to assign lower valuation multiples to the stock.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends eBay. The Motley Fool has a disclosure policy.