eBay: Getting Something for Nothing 26 comments
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In my first post I had made the point that investors have un-fairly punished the whole of eBay (EBAY) for its struggling core site. I pointed out that eBay is now made up of a lot more then just auctions and their healthy high growing properties are now suffering "guilt by association."
Paypal is sleeping with the enemy
I received many challenges on how I breakdown my original revenue lines, and I want to thank those critics. My goal is always first give all the facts, and then give my opinion.
Here are two good points that eBay shorts made:
- Much of Paypal's revenue comes from eBay's auctions sites
- Much of eBay's Marketing services also come from eBay's auctions sites
I want to tip my hat to people that pointed this out and take these points into account.
Let's take a closer look
So how much of PayPal's revenue comes from the (now perceived as cancerous) eBay auction sites?
49% and falling – here is the percentage of Paypal's revenue from eBay auction sites for the last 4 quarters
- 56% Q4 2007
- 54% Q1 2008
- 51% Q2 2008
- 49% Q3 2008
As you can see the trend is that more and more of Paypal's revenue is coming not from eBay auctions sites but from Merchant Services, like the non-widely known recent agreement for WalMart.com to accept Paypal.
In an effort to sever revenue associated with eBay, let me be conservative and assume half of the revenue generated from Paypal's eBay relationship will go away – that still gives us a ttm (trailing twelve month) revenue total of $1.73 Billion (out of $2.34 B) in revenue and growing 27% Y/Y. During a recent investor conference John Donahoe disclosed that PayPal's operating margins (excluding options) is expected to come around 20% in 2009. That gives us a net income of approximately $346 Million for the Paypal unit for the last 12 months.
Following the same exercise for Marketing Services (assuming one half of the advertising on eBay will be toast and a 40% operating margin) we get a (ttm) $263 million in net income and growing at 50+% Y/Y.
We all can agree Skype has no synergies with eBay and we can safely claim its full net income does not rely on eBay auctions sites. So Skype's (ttm) contribution is approximately 89 million in net income growing at 40+% Y/Y (again using John Donohoe's disclosed operating margin of Skype of approximately 16% & 40% for marketing revenue)
In total we get:
$346 million from Paypal (excluding ½ of eBay transactions)
$263 million from Marketing Services (taking out ¼ for 'foreseen' eBay losses in traffic)
$89 million from Skype
----
=(ttm) Net Income (excluding taxes) of $698 Million
That gives us an EPS of non-Auction entities of .54 cents a share based on a diluted share count of $1.29 B.
54 cents per share gives us a P/E (based on $15 as of early 10/17/2008) of 27*
Okay, okay so what does this all mean?
How does a P/E of 27* compare to other large dotcoms?
As of early 10/17/2008, we get:
- Google (GOOG) @ 282 P/E is 25
- Yahoo (YHOO) @13 P/E is 25
- Amazon (AMZN) @53 P/E is 38
- Baidu (BIDU) @240 is 71
So essentially you're getting healthy high growing companies like Paypal, Skype, Kijiji, Shopping.com, 25% of Craigslist, Shopping.com, and Rent.com (among others) for a reasonable P/E of 27*. This is in-line with other dotcoms, and more importantly completely taking eBay.com (and all its international counterparts) out of the equation.
Don't throw the baby out with the bath water
I hope I've proven my point that the market has completely written off eBay auction sites as the next AOL. This may be true, but as I've clearly laid out above - investing in eBay today at $15 has this assumption already priced in; you're in effect getting eBay.com (and all its international auction sites) for free. I personally don't think eBay is going away any time soon, and I acknowledge the monumental challenges ahead. The fact remains that there is still no better place to sell or buy your vintage 1977 Led Zeppelin shirt...and as the Oracle says, if you can something for nothing, you're already ahead.
*Will be higher depending on tax rate.
Stock position: Long on eBay.
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This article has 26 comments:
So even if there is a good chunk of Paypal revenues from non-eBay sites, there is probably very little Paypal profit from non-eBay sites.
Shares are $15, down from $40 in November of 2007.
Why is this? John Donahoe!
eBay Investor is long on a losing stock.
Investor: you should have sold your shares last year, so we wouldn't see your hype about how 'great of a buy' eBay shares are right now.
If you buy it, short it.
You have been warned by an ex-eBay customer, not a losing share holder.
"The fact remains that there is still no better place to sell or buy your vintage 1977 Led Zeppelin shirt"
gave me, and I'm sure many other ex-eBay sellers, a good laugh!
Nice try JD!
The OPs comment gave me a chuckle. Obviously he has heard that a few 100,000 sellers have bolted and the 77 zep t-shirts can be found on quite a few other sales venues now.
Since Q1 ebay monthly traffic is down 10 million visitors while virtually quite a few of the smaller, lesser known sites are experience tremendous traffic and revenue growth.
As ebay caters exclusively to large ebay vendors now, shareholders can expect a continuing deterioration of traffic and sales on ebay since MOST large vendors have their own websites use ebay's sales platform merely to drive first time shoppers to their websites offering discounts and other incentives for ebayer's to make future purchases from the sellers website rather than their eebay store.
Donahue and company has no clue just how many mainstream ebay traffic has been getting eroded over the last few years as more and more large online businesses use ebay's platform to drive as many customers to their website once the initial ebay sale has been completed. Ebay think Amazon is their biggest competitor when in reality ebay's biggest competitor is the same online merchants, manufacturers, wholesalers and other large volume sellers that have collectively managed to drive a growing percentage of buyers off ebay and to their websites.
Currently payments on sales from ebay acccount for the largest percentage of paypal's revenues, and as ebay marketplace continues to get less and less monthly traffic and GMV continues falling, PayPals revenues will fall as well.
Shareholders better hope and pray for continue growth from skype, stubhub, shopping.com and their classified ad site, because ebay's once core business os falling apart fast no matter what Donahoe wants to publically claim.
Marketplace is a disaster, and between 100,000s of small volume sellers leaving who are also ebay buyers, coupled with the ongoing errosion of big ebay businesses eroding much of ebay's buyer traffic....things will be getting really ugly over the next coming year.
Do you REALLY think so? Many small sellers are giving up ebay because that is no longer true. As a 10 year seller who has never had a negative in over 3,000 feedbacks and with DSR's of 5.0 across the board I am being forced to give up Ebay! Why? Because they are effectively hiding any items I put up. I simply don't SELL enough items to warrant getting decent exposure in their search engines - though I'm allowed to PAY the SAME FEES. What you'll see with their Best Match are the big box sellers and the powersellers. Ebay is driving off small sellers in this same manner. We were told at the beginning of the year that bad sellers would drop in the listings and good sellers would rise to the top! Well, what they really meant was big sellers would rise to the top and the rest of us could go hang! Right now I have the same chance of selling on ebay (and paying their exhorbitant fees) as I have selling on a number of other sites for free!!! THIS is Donahoe's plan for Ebay! He's killing off the very heart of the business - the very reason why most people shop there and the reason why sales are DOWN! Don't buy on Ebay!
The one completed auction 390000264972 for LED ZEPPELIN "1977 Tour T-Shirt" RARE ORIGINAL VINTAGE (not a reproduction) sold for $43.24 and ....... at the bottom of the auction, eBay had inserted advertising pointing potential buyers to Zappos.com, JCPenney.com, and 80sTees.com
If there is no BETTER place to buy / sell Led Zeppelin t-shirts then why is eBay pointing potential buyers to THREE other online locations where they can buy Zeppelin t-shirts?
Have you considered that there may be monopoly or anti trust issues with attendant litigation expenses with eBay Inc's purchase of Bill Me Later?
PayPal will not benefit from the eBay related hostility engendered from 'disgruntled' ex-sellers, quite the contrary, it is Google Checkout who benefits from that. Ask me how I know?
My MM funds are now in Vanguard and PP balance is kept at ZERO. I sweep the same day for the very few occasions I am compelled to use PayPal.
I use eBay as a buyer, though I will be selling some things soon. (I have sold a few things in the past.) So far, in 2008, I've bought over 420 items on eBay, some as much as $1,000 (lens a Canon SLR camera). More than half have been from "small" sellers and individuals. All told, I've bought over 1,500 items on eBay since 1999. My feedback rating is 100% positive.
From a BUYER'S perspective, the biggest problems I see are from sellers, not eBay. Most of the sellers I've dealt with have been quite good, but some were horrible and other sellers' behavior was so obvious and egregious that I wouldn't buy from them. Some problems verge on dishonesty, others may be the result of ignorance, greed, or just plain stupidity.
- Sellers who hype their descriptions, often violating eBays listing rules by including brand-names in titles and descriptions that are NOT what they're selling. (E.g., a photo filter might be by Sonia (Indian company), but the seller includes top brands like Hoya and Tiffen in the title.) For used items, the terms "mint" and <GAG!> "minty" are used for items with obvious wear and even missing pieces/parts.
- Sellers who use invisible tags/keywords by making the text white. I ran into one listing that had over 1,000 keywords this way. I reported it to eBay, but it was not removed.
- Sellers who charge exorbitant shipping fees--e.g., $15 to send a 2-oz item via first class mail in a cheap padded envelope (no insurance). They apparently do this to get around eBay's fees. Some set a small price like $0.99 for the item, then charge $9.99 for shipping.
- Sellers who don't ship for a week or longer, including one whose listings claim, "Fastest shipment on eBay!"--but who didn't ship my item for 9 business days.
- Sellers who sell things they don't have. One fairly large company, with its own website, listed some horse blankets on eBay. They took over a month to ship because the company didn't have them in stock. (In some states, I understand, that may be illegal.)
- Sellers who set unrealistic reserve or starting prices. Currently, there is a used book listed starting at $72, but which sells on Amazon new for $16. (And, no, it's not signed nor a rare first edition.) An artist listed a painting that didn't sell, so he/she RAISED the starting price, THREE times. It still hasn't sold, of course: sometimes, the Gods do set things right.
- Sellers who use stock photos they got from some website, rather than photos of the actual item they're selling, especially for used goods. Then, there are sellers whose photos are grossly out of focus and/or terribly exposed. (I found one dealer in antiques/collectibles whose photos were so bad that it was impossible to read the markings that the photos were supposed to show.)
- Sellers who appropriate not just bits and pieces, but entire pages from someone else's website as parts of their listings. Some sellers seem not to understand or, perhaps, not to care about copyright and trademark laws.
- Sellers who include looping scripts in their listings that cause browsers to hang up or seriously slow down.
- Sellers who use "checkout" services that add anywhere from 3 to 8 (yes, 8) additional steps for the buyer and end up at the PayPal site--and then open pop-under windows.
- Sellers who think that they have to use animated GIFs, grotesque borders, 72-point text in 17 colors, sounds that play with no way to cut them off (other than closing the page), huge photos (1000+ pixels wide), and "cutesy" stuff, like putting "L@@K!" in titles.
I won't complain about the listings from sellers in China that are difficult to understand because of poor translations, though the larger companies could hire someone who speaks/writes English well. However, many US sellers are almost as bad.
As I wrote, most of the sellers have been quite good, but I have to wonder how many who are complaining about poor sales have contributed mightily to that problem by their own actions.
FWIW, I use an auction-management program, Auction Hunter, which does pretty well in searches--it turns up listings by all levels/sorts of sellers, not just the power sellers.
Not if you build that into the price, which Amazon, Buy.com, and many other companies do. (Amazon offers free shipping on most orders over $25.) Have you tried to sell anything through Amazon Marketplace? It sets the shipping charge for you--a fixed rate per book, for example, regardless of the weight of the book. When I asked about that, the reply from Amazon was that I should include the total cost in my price.
I DO sell on Amazon -- I sell non-media products on Amazon and I set my own shipping rate. I do NOT offer free shipping on Amazon and it does not affect my sales there.
thebrewsnews.wordpress.../
I sold a rather heavy item on eBay the other day and asked $15.00 shipping. Ebay promptly flagged my ad saying they thought the shipping was excessive. I lowered my price to $12.00 to satisfy them. To my surprise, when I went to the post office to mail it, the postage was $24.24. Needless to say, I didn't make a fortune on that sale!!
I can only answer for myself. Until recently I was an eBay buyer/seller, since 1997, with over 1,800 all positive feedbacks.
About 60 percent from selling. I never used any of the poor seller tactics that you have mentioned, and I did not buy from sellers that did.
Feedback gave me a window into the sellers or potential buyers. That field is no longer level.
You can call us complainers, but most of us are good honest sellers, just sad that eBay is not what it was, or could have been. It needed changes, but the changes they have made are not for the better.
What once was acually fun, is now just a bad taste in our mouth.
You sound like a typical eBay moaning Buyer
Last time i went to the post office they would not give me "FREE" mailing..even thou I said eBay said it should be free
I had also thought that Paypal could be the one thing that would maintain some value for the company as a whole, but I am now beginning to doubt this. The events of the last few weeks have led to calls here in the UK from both politicians and regulators for tighter control of financial institutions and as far as I can tell the same views are being put forward in the US. Can anyone see Paypal surviving a closer scrutiny of its existing practices? I feel that the share price still needs to fall some more before investors could truly be getting 'something for nothing'.
A case can be made that PayPal merchant services growth is not only dependent on a healthy eBay marketplace, but is tied tightly to a growing eBay. Traditionally new sellers were attracted by the low barriers to entry and the unrestrained market of the core eBay market. As these sellers matured they tended to migrate away from eBay, taking PayPal with them, a process which automatically leads to steady, reliable growth of PayPal. How does that picture change if eBay becomes, as you called it, perceived as cancerous? If the core is contracting, the migrating sellers will not be replenished, eventually choking off that steady stream of expansion.
In short, you need to think twice about valuing these companies in isolation. The PayPal-eBay synergy created a rapid expansion and strengthening of both companies - but that synergy is a two-edged sword.
This is NOT a generic statement. It is a Direct Communication to me (nymarts.com) from Chris.
From Chris Fain President, CEO OnlineAuction.com, OLA.com October 18, 2008 :
"Lets roll....Tell everyone to head to OLA.com and become Founding Members this should drive enough traffic our way and build up enough revenue for us to have a substantial advertising budget. For instance if everyone kicks in their $196.00 and we have One Million Founding Members I will spend no less than (90%) $176,400,000 dollars promoting all OLA Members products ! ...Tell everyone on the boards to get over here!!!....Lets do it."
This refers to the All Important TELEVISION Advertising.
Email EVERYONE who Ever Sold on Ebay and is Looking for a Brand Shiny New Home !
Email EVERYONE looking to Turn Back the Clock to the "Good Ole Days" of Auction FUN ! ! !
Remember : THE ACTION FOLLOWS US
LET'S BRING IT !
OLA > No Hassles, No Rediculous Fees, No Big Brother Crap.
Do you really think that the anti-eBay posters give a hang what you think?
They've had the rug pulled from under them. Many of the posters depended on eBay for a living.
Most are "vociferous" because they are good honest sellers being pushed aside like a pile of trash. The same sellers that helped make eBay.
Do you think that the poor or dishonest sellers would be posting here?
When a person is taken advantage of, it tends to make them vociferous.
Please check my other comments for any sign of "copy-pasting" on these blogs. And also try selling on eBay to get a real taste of what is going on at what once was a great venue.
Share values would probably rise, if eBay returned to it's roots. But then again, it may be too late.
there new changes to the site were nothing more then sighning there own death warrant.
google checkout will replace paypal someday, google will replace ebay