eBay in the Basement - But Not for Long

Make no mistake about it. The current market sentiment has largely written off eBay (EBAY) as a failing business. Lower GMVs (Gross Market Value), stalled user growth (at 3% Y/Y), economic downtrends, new radical changes to the core site, and extreme competition from other sites like Amazon (AMZN) are all putting unprecedented pressure on eBay.

With so many negative forces, it’s no surprise that eBay is being thrown in the dumpster.

A more holistic view

There are legitimate concerns about deceleration to the eBay.com property (especially in the US market). I believe though that the investment community at large is missing key pieces of theeBay Empire. The only way current valuation makes any rational sense would be to assume that the other eBay properties (including their fast growing Paypal.com/Skype components) will undergo a contraction in revenue; something that even naysayers have trouble foreseeing.

Just a few facts

eBay generated 2.11 billion dollars in revenue in the 3rd quarter; of this 952 million (or 45%) came from sources outside eBay.com!

Let me break it down:

597 million from Paypal (27% Y/Y growth)
212 million from Non-eBay sites, Shopping.com, Rent.com, Kijiji (29% Y/Y growth)
143 million from Skype (46% Y/Y growth)
----
952 million

As you can see, those are very healthy growth numbers (especially in this economic climate). True these divisions do have lower margins then the traditional eBay sites, but fortunately their high growth rates offset this shortcoming for now. Do people realize that almost half of eBay is not eBay.com (as people know it?)

Getting something for nothing

I’ll let people absorb this and in my next post, I’ll show how I believe investing in eBay today is like getting “something for nothing”.

Disclosure: Author holds a long position in EBAY

Comments

[redbaron:]

Investor: OK, I grant you that.

Now I am going to ask you, in this current environment, 1) what sort of a PE do you put on this half of eBay that is showing this growth?, and what sort of a PE do you put on the other half, the half that is the traditional auction based business that is showing negative growth? And third, can one average those two PE numbers and use that for a rational price basis?

I'll await your response, as I see that glass as half empty.

2008 Oct 17 08:01 AM

[Tote:]

Wrong.

Half of PayPal revenue also comes from eBay.com transactions. And the vast majority of the $212 million figure you mention is actually advertising on the ebay.com marketplaces.

So in one way or another about 80% of revenue comes from activity on ebay.com marketplaces.

If ebay.com fails, so does ebay INC. End of story

2008 Oct 17 09:15 AM

[downwithebay:]

one thing I dont think you have factored into the equation is that most of the large business on ebay, that ebay is now catering to have their own websites...AND majority of these businesses are trying quite hard to entice their ebay buyers to shop their website once they've made the initial sale on ebay.

I dont think ebay has a clue just how much buyer traffic ebay loses to the same big companies they are trying so hard to cater to.

Virtually every time I make a purchase from one of the larger vendors on ebay whether it be for clothing, footwear, jewelry, gemstones, computers and hardware, electronics etc....the bigger ebay vendors always follow up with emails encouraging me to shop their websites NOT their ebay store and typically offer me a 10-25 percent discount on most purchases when I shop their website.

In my opinion that is the most significant reason GMV and buyer traffic on ebay is down as much as it is. Ebay is trying so hard to give alot of the large volume sellers alot of site exposure, and in turn a large percentage of the large volume sellers are taking advantage of ebay's selling platform to drive many buyers to their websites to avoid hefty ebay and paypal commssions and the headaches associated with many of ebay new policies.

Plus...as ebay has taken steps to reduce the number of sellers using many different techniques, literally 10s of 1000s of small businesses have started selling on other sales platforms or started their own websites which is and will continue to erode ebay's existing buyer traffic as more and more of these small business (bronze power seller types) inform their ebay customer base about their new site location.

Regardless of the economic situtation...expect to see buyer traffic at ebay marketplace to slowly but steadily continue to decline as more and more businesses of all sizes drive customers to their websites using ebays sales platform especially now that ebay is courting so more and more manufacturers that do have their own merchant accounts and would like to avoid ebay and paypal fees as much as possible.

2008 Oct 17 09:26 AM

[old eBay se...:]

Down with eBay, that is what we do and we are not even a big box outlet. eBay is a cheap way of doing PPC to get buyers email addresses and turn them into customers on our web site.

One big thing that happened yesterday the search was not working at all for over an hour and according to eBay policy any items that were affected by an outage for over an hour will get a refund. Well I guess they are going to have to give a refund for everything that is listed on eBay including the store listings since they are now listed in the BIN lisings. That is going to cost them a pretty penny and is going to really drag the earnings down for Q4. You can read all about it on the auction bytes site:

www.auctionbytes.com/c...

eBay is going down the tubes or as the old folks used to say: Going to hell in a hand basket.

Bill

2008 Oct 17 09:53 AM

[MrsLinarcos:]

Well, I started selling on Ebay and I'm vastly disappointed. I think they've gone overboard on all their nickel and diming for each auction. I'm losing money, not gaining.

2008 Oct 17 10:12 AM

[downwithebay:]

old ebay seller,

We closed our two ebay stores a little over a month ago, but like yourself have our own website. We NEVER used ebay as a platform to drive ebay shoppers to our website, BUT now that we no longer do business with ebay, we have been gradually contacting our 20,000+ ebay customer base encouraging them to visit our website and offer some really cool promotional methods that have been working great. Our website sales have nearly doubled since we began focusing all of our attention on our web sales rather than our ebay sales.

2008 Oct 17 10:51 AM

[Ebay user 1:]

This guy has no clue, he needs to sell a few things on Ebay to see what is really going on ... this moron Donahoe kissed the asses of all these big sellers and let them list for free so they can steal those same customers and take them to their own site, meanwhile basically telling all the smaller sellers to go to hell, the same ones that made Ebay famous for unique items, comparing Ebay to Amazon is just plain foolish when it comes to making money on their stocks ... if and when this idiot Donahoe fully completes taking this company fully to a Amazon like website its game over for Ebay ... you see this moron Donahoe made Ebay now fully exposed to the downturn in consumer spending by only catering to the big seller with new items, in a less than good economy people buy used and or bargains on Ebay, big box sellers wont offer any kind of deals on their items, hell that same stuff is listed all over the internet ... this can be short term a great idea for a bigger seller to discount items to get the email addresses of their buyer and drag them over to their site, its cheap advertisement for them and once they hook them, its bye bye Ebay ... I cannot believe someone has not put a bag over Donahoe and punched him in the face by now, this guy needs shaken hard, you talk about someone that has absolutley no damn clue what he is doing, its almost shocking ... these analysts only see what Donahoe see's, but to the rest of us on the inside of Ebay (the smaller sellers) its as plain as could be ... this stock is "junk" their feedback rating is zero ... he gives big sellers that screw Ebay in the end free listing and jack the smaller unique sellers fee's to the moon, now how stupid is that? ... you can buy what the big box sellers have anywhere on the internet, small sellers items have a huge huge sell through thus pay even more in fee's and they actually sell their items, but at a much higher cost, now the small seller has to raise their prices to sell on Ebay to cover the fee's and now instead of Ebay having good deals the prices are getting or have surpassed what other sites sell the same items for .... GET DONAHOE OUT OF THERE !!! JESUS!!!!!!!!!!

2008 Oct 17 11:05 AM

[Ebay user 1:]

Another thing this guy does not understand some sellers are still holding on and selling on Ebay but their fee's have gone up at least 40% ... alot of those people will have to stop selling on there or have stopped because the fee's are just crazy now, so the revenue you seen go up in the first half of the year was because the fee's were jacked to the moon for the sellers that actually sold their items, there were less sellers but tons of new Final Value fee's disguised as a discount lol ... caught most sellers by surprise and they delt with it because they had no exit plan at that time, now the exits have signage and people are finding all the doors and the tricks the big box sellers are using, I am telling you do not invest in this stock, go buy some Amazon if you want a internet marketplace stock, its doing what its been doing all along ... Ebay had 100% of the market share of auctions and they DID WORK PERFECTLY! ..auctions were key, we could put something on Ebay and basically list it at a very low starting price and then say the hell with it and it went up and sold, you cannot do that now because of the low traffic issue and this IGNORANT BEST MATCH SEARCH!, so now we have to start auctions at a much higher price because there is a huge risk we will lose money, thus the reason behind why Ebay is trying to get everyone to use "Fixed Priced Listing" ... the only reason auctions slowed was because OF THE FEE'S!!!! ... we can no longer say the hell with it when we list, I used to say oh well that guy got a deal, but I made it on another item it was fun looking at the auctions everyday, now its just plain scary at times ... Auctions are still the key to Ebay ... this fixed price bullshit is what ruined Ebay if you ask me.

2008 Oct 17 11:22 AM

[Tippie:]

In theory we all believe that If we complain hard and loud enough maybe someone at eBay will listen? Right? Well, not so!
Donahoe in theory still believes that eBay is on the right track! LOl. eBay at $15 bucks and he believes he is on the right track? Lol.

"It will take some time, Donahoe says! EBay has been sinking like a rock for the past 5 years and he says it will take some time? Is he for real? This is the 21st century! People don't need time to make up their minds! They have already made up their minds! eBay is OUT! eBay is OUT! eBay is OUT!

Three things will cure eBay!

Bring back auctions only! Bring back all the little sellers! ( They will not steal your buyers) Happy sellers and buyers is what made up eBay. Get rid of one way feedback.

Pay a dividend to investors! Happy investors promote eBay!

Fire Donahoe! Fire Meg from the board. They started the decline of eBay!

Bring back the old eBay for Christmas!
Watch the stock go up!

2008 Oct 17 01:12 PM

[Whiz Bang:]

All people do is whine. The cost of everything has gone up. Why should business through eBay be any different? It takes money to make money.

Store and fixed price listings ruined the gem that is eBay. I believe they're trying to recapture the magic of the unique item auction business. For that I applaud them. The search and browse experience is infinitely more robust and usable.

eBay will figure things out and level the ship — just you wait and see.

2008 Oct 17 01:39 PM

[Ebay user 1:]

They are trying to recapture small sellers by giving big box sellers free listings? and make the small sellers pay full price.

Things go up? Yeah I agree with that but you dont raise Final Value fee's for small sellers 50% in some cases its been 60% in one month, thats nutts!

Big box sellers dont give a damn about the final value fee's because they get free listing and when you get free listing you can list the same boring item over and over again until you get the higher price you want or do they really care if it sells on Ebay? ... they have their own websites!!! ... they figure if you are dumb enough to buy it on Ebay then go for it, meanwhile all those sellers Ebay lets them use their business website name for their Ebay user ID, anyone with a brain just adds .com to it and buys it directly from them.

2008 Oct 17 07:07 PM

[arlin:]

I've never seen anything like the visceral hatred of Ebay.Many of thier former users are saying they "will never come back",and I believe them.We are talking about many thousands of people.Other web-auction sites are happily picking up their business;while I dont think there is any site as good as Ebay once was,Im realizing Ebay isnt either.
In their (Ebay) quest to attract Large sellers,which may or may not be a good idea,they have purposely abandoned their base business,thier uniqueness,and apparantly are making it even more difficult for the few small sellers remaining.IMO Investing (long) in Ebay now,with the company mis-firing in so many directions.is at best a crap shoot,especially in this economy.Yes the Paypal business is good,(if not monopolistic?)now its all you can use on Ebay.Skype cost Ebay several billion,I think,and lots of competiton there;I've been short Ebay in the past and am still thinking that way.

2008 Oct 18 12:01 AM

[Patricia013:]

This is very true even of small sellers. They are building other sites the way they built ebay - and they are directing their buyers to these other sites as well as to their own websites. I agree that ebay traffic will continue to decline because all of these sellers used to be buyers on ebay - not anymore! Don't let ebay say its the economy either...sales on my website are good! I'm afraid Ebay is getting just what it deserves!

2008 Oct 18 02:25 AM

[Et tu, Brute!:]

My sales on other sites are increasing also! As Patricia 013 states! The economy woes will be Donahoes latest crutch. Don't you believe it! Not for one second!

All I've had time for lately is to read on Seeking Alpha. Barely! I'm too busy... with sales!

P.S.: Why is it these one-time-posting-wonde... for ebay only have a one-word vocabulary... and that's "whine". Or "bash" (pot calling the kettle, etc) Get out of grade school and try posting some substance on the venue.

I'm working, dude! Not whining!

2008 Oct 18 03:31 AM

[downwithebay:]

BTW investor, according to quantcast user traffic at paypal hase been declining since Q2 with 700k less users in the month of Sept. than in last month of Q2. Since ebay doesnt use GAAP aucting, I serious doubt paypal's growth numbers are very accurate knowing user traffic is steadily declining.

As far as skype is concerned, ebay is still vigorously looking for a buyer for skype, so no matter how much they hype up skype, ebay themselves appparently dont see a promising future for skype.

Now, they've just borrowed a billion bucks to finance Bill Me Later and the ad sites they just purchased.

Ebay stock may still be a good value at these prices, but with the economy the way it is coupled with Donahues radical approach in investments, I forsee little up movement on this stock for quite some time, and I certainly dont see getting something for nothing since that something is currently ruining both Doanhoe's and Ebay's image.

2008 Oct 21 12:59 PM

[Chelle9:]

Really? So, are you so confidant that you have put all you have in this sure thing?

Maybe you should look at the the sources of that revenue coming from outside the marketplace before you make such baseless comments. Nothing eBay has is independent of the marketplace nothing. All of those other revenue producers that are not marketplace directly are advertised all of eBay.com- why is that? Simple it is the only place eBay can acquire traffic to those other sites. Have you ever done comparisons of traffic of those sites relative to eBay.com? It is pathetic!

PayPal TPV declined 1% in the Q3- did you miss that? This decline occurred as PayPal is increasing its presence in off eBay e-commerce. eBay is pinning PayPal's success on its increased penetration of eBay.com. Let me write that again - eBay is relying on further penetration of PayPal in eBay.com to increase growth in PayPal- eBay is increasing PayPal's dependence on eBay.com believing this will increase PayPal's success. What happens as more sellers leave the marketplace? Sure there will be a spike due to eBay's new paypal only policy, but that will be a short run growth and will plunge as we leave.

I refuse to use PayPal on any other off eBay purchases. I have begun writing to all of the businesses I purchase goods and/or services from to inform them that I will not use their service or buy their products as long as they are partnered with the vicious eBay Inc. in any capacity if they do not offer Google Checkout a superior and by far safer service. I will also not buy from any ex-sellers from the marketplace on other sites that offer only paypal and a merchant service as a payment option. I want the convenience without the unethical criminal PayPal traits and that means I want Google Checkout.

You clearly either do not know of the absolute hatred sellers on eBay have for PayPal or you underestimate that sentiment.

eBay Inc. has not only betrayed us they have and are abusing their customers and that is not a winning business practice. However, I encourage you to invest your money in this disaster and then I'll enjoy reading your stories of losing your A** on this sure thing you are pitching. LOL, it so amusing to read the assessments of people who have no clue!

2008 Nov 01 03:31 PM