eBay reported in-line 3Q results, with outperformance in Marketplaces revenue and incremental operating leverage offsetting a modest shortfall in PayPal revenue. However, guidance once again came in below expectations, driven by domestic macro weakness and caution regarding the holiday period. While we suspect management’s near-term forecast may prove conservative, we see no change to the positive, consistent fundamental long-term trends. Therefore, although we acknowledge there could be some risk to the story over the next quarter, we reiterate our 2014 estimates, calling for accelerating growth in both primary business segments, and maintain our Buy rating.
eBay recorded 12% GMV ex-vehicles FX-neutral growth, down 1% q/q, with domestic growth of 15% ahead of our 14% estimate, while International GMV ex-vehicles growth was flat sequentially at 11%, also 1% ahead of our estimate, reflecting a stabilization of the environment in Korea and the EU. Active user growth was consistent at 14%, driven by strong retailer additions and geographic expansion. Moderating ecommerce growth rates in the US, however, negatively impacted the outlook for 4Q, with growth slipping from 15.5% in 2Q to 13% in 3Q and deteriorating further towards the end of the quarter.
We had previously been expecting domestic growth in the 13-15% range and still expect double digit growth in 4Q. Furthermore, we believe the ongoing roll-out of eBay Now and in-store pickup should help drive long-term growth beyond any short-term macro weakness.
PayPal revenue rose 20% y/y on an FX-neutral basis on a 25% y/y increase in TPV, showing some better than expected acceleration due to stronger penetration with Merchant Services. FX-neutral TPV growth was flat q/q for TPV on eBay at 15%, benefiting from a 100bp q/q improvement in the penetration rate to 78.2%. Merchant Services growth accelerated 1% to 30% as growth in the net number of payments was flat q/q at 24% and active account growth was also flat q/q at 17%. The take rate of 3.7% was slightly below our expectations, however, due to the ongoing mix shift to larger merchants.