Some Advice for Business-Challenged eBay

eBay (EBAY) is scheduled to report 4Q08 earnings on Wednesday Jan. 21 and the Street is projecting revenues of $2.120bn and Adjusted EPS of $0.40. My work suggests that those numbers are achievable but 2009 Street estimates of $8.7bn and adjusted EPS of $1.65 could be a challenge to meet. As such, I believe that eBay should withhold providing guidance for 1Q09 and for full year 2009. Doing so should help stabilize the share price and reduce volatility in the near-term.

It goes without saying that eBay's core business remains challenging, while results from the payments, classifieds, and advertising businesses are strong. However, in order for the shares to recover, the core business will have to start performing. My estimates are calling for a dramatic 12% FX-neutral decline in 4Q GMV and an 8% decline for full year 2009, as slow auto sales weigh-in more negatively. Ex-autos, I expect a GMV growth rate of -6%. Unless the GMV growth rate stabilizes the shares are likely to languish for some time.

Listings trends have been strong and conversions on the auction business is stable per the data that I have analyzed. However, the BIN conversions are off sharply and ASP numbers are declining rapidly. In addition, it appears that listings quality has been declining. Further, per the comScore data, traffic to the site continues to decline as eBay's demand problem worsens. On the sell side, sellers are still departing the site in significant numbers to other channels such as Amazon (AMZN) (buyers are going to Amazon as well). Clearly the business remains challenged.

What is eBay's Management to do?

1. For starters, forget about issuing guidance and blame it on macro conditions that make it difficult to predict anything with surety. No one can argue with that.
2. There are clearly certain categories such as collectibles and autos that are perfectly suited to auctions while others are not. Adjust the model to reflect that reality. Contrary to some, I do not believe that eBay's entire auction business is structurally challenged.
   
3. Pull back on the share buybacks and allocate more capital to technology investments. Search on the site is lethargic. Management should either invest heavily in that area or outsource that function to one of the search providers like Google (GOOG).
   
4. Sell Skype. It is not additive to the core business model. It is a telecommunications company and investors wishing diversification can do so on their own.
   
5. I would keep the payments business within the portfolio because selling it would put the current synergies at risk. However, if pressures mount, then a spin-off of the payments business, where eBay is the majority shareholder, would make sense.
   
6. Eliminate your high priced consultants and listen to your "sellers". They are the best source of input and their advice is free. Maybe create a high level management position like a seller czar, so to speak, whose sole function is to work with the sellers.
   
7. Develop a more effective marketing strategy to get buyers back on the site.
   
8. If all else fails, consider a merger with another one of the Internet leaders such as Google, Yahoo! (YHOO), or Microsoft (MSFT).
   

Meanwhile I will remain on the sidelines but will continue to monitor the business for any critical turning points. The shares are trading at extremely cheap multiples for an Internet stock at 4x '09 EBITDA and 8.0x Adj. '09 EPS. But shares are cheap for a reason and for eBay it's the struggling core business.

Comments

[Wake-Up!:]

What is eBay's Management to do?

Me? I would simply pull the plug or sell it to a company that can get it back on it's feet, like Google. It's obvious that they are beyond repair.

They have alienated all the honest sellers and long time veteran store owners. They have been cheated and bullied out of business by draconian policies and eBay's vision is to replace them with over-seas garbage and Diamond PowerSellers, a.k.a. robots.

John Donahoe summed it up when he stated:

"We had to create a mind shift at our company–we had to think bold and not just incremental. We had to create a vision of the future so people could let go of a very successful past.”

Congrats! JD! You have successfully destroyed a successful past and created a vision of over-seas garbage! Now..... couldn't you just pick up your check and leave?

The doors are wide open for new opportunity and eBay can thank themselves for that. People are finally realizing there IS life beyond the palace walls.

Bonanzle.com is growing at an astounding rate. Buyers and sellers are and signing up in droves and you can have fun again! You do remember what fun was, right? Experience it again - and have some real money in your pocket instead of giving it to eBay!

JMO :)

Jan 20 09:42 AM

[leapingcat:]

A well-thought-out article by a writer who obviously knows more about how to run an internet auction site than Ebay's management. Auctions are still flourishing and from the figures that I've seen (possibly the same ones) they are giving buyers what they want, but they are a mature market and Ebay should be protecting and enhancing this market by improving and not abandoning customer service, and so letting the doors open for competitors such as Bonanzle and Ebid.
Bringing in the so-called diamond power sellers has caused a lot of annoyance to buyers, for example people looking for childrens' books, because they cannot find the distinctive items that what they want amongst the mass of boring run of the mill stuff. Driving away buyers drives away sellers and the downward spiral continues. There is no shortage of ideas as to how to fix Ebay and give investors confidence in it, but the present management are too arrogant to accept that they are wrong (ebay's share price has dropped by double the percentage points of Amazon's in the past year) so I fear that only a boardroom coup could put things to rights and give the mass of buyers and sellers what they are looking for.

Jan 20 10:29 AM

[Yankee Trader:]

I echo what Wake Up! said. Bonanzle is like eBay was 10 years ago. Remember that folks? It was fun! There is transparency by mgmt...heck the founder even blogs and sells! Support is just that....I sent an email to support and received a correct friendly answer within 2 hours.

The site is growing by about 250 users a day as the wave gains momentum. Buyers are out numbering sellers approx. 3-1.

Bonanzle is the future!!! Join us there!

Jan 20 10:37 AM

[User 340844:]

Ebay began to treat sellers and buyers very poorly. They made changes such as feedback and payments that offended both and ruined both the buying experience and selling experience. The site continues to become less and less user friendly. They forgot that sellers are also buyers and the source of their income/profit. Ebay does not do what they say they will and have been rude to buyers and sellers who ask them to do what they say they will. They now allow bidders to extort and scam sellers and they do nothing about it execpt blindly back the bidder that takes money from the sellers(and Ebay). As a long time buyer, I miss the old Ebay which wasn't perfect, but far better than it is now(it was also more profitable then).

Jan 20 10:42 AM

[redbaron:]

Good analysis, and great suggestions, but I bet no one in a position of to do something about it is listening. Management has said that the current direction is the future. What more do you need to know?

This current model is broken, but it could be fixed with new management. Without that sort of significant change, the stock is not going anywhere but lower.

The sellers are this company's customers, as they pay all the fees. No company can succede when they treat their customers this way.

Jan 20 10:45 AM

[RicRoe:]

"....forget about issuing guidance and blame it on macro conditions that make it difficult to predict anything with surety. No one can argue with that."

A statement further from the truth has not been spoken. eBay's executive ethics tool set is severely lacking. Allowing the company to avoid reporting quarterly with an excuse that macro conditions make it difficult does nothing to ease concerns over how eBay is being led.

Mr Donahoe joined eBay after being a management consultant. He is too unsed to making suggestions based on little or no working knowledge of how the business operates, getting paid and then walking away.

In his first stint as a true leader, Mr Donahoe's policy and system changes serve to highlight his lack of real experience as well as a fatally flawed understanding of how the company he leads actually works.

Suggesting that Mr Donahoe be given an excuse to avoid performance reports is foolhearty, ill advised, and puts the entire future of eBay at risk since progress or the lack there of would not be seen until it was too late.

Mr Donahoe has personally taken eBay down a very dark path, his continued leadership is in question in many corners, as the first year of his tenure has brought eBay's value to near record lows.

The heat should be on Mr Donahoe and his chosen team to restore eBay to its position a healthy marketplace. Measuring his performance on a quarterly basis is vital to justify his continued role as CEO and should not be deviated from given the company's poor performance.

Economics alone do not support the weakened position eBay finds itself in. Failed policy and system changes which Mr Donahoe has implemented have damaged eBay's market standing more than any economic factors.

Mr Donahoe must be called upon to reverse the damage brought by his failed policies, and he must prove his ability to restore the marketplace to its former standing as a leader in global internet sales.

Running from quarterly reporting as a measure of that progress would doom the company to certain failure.

Jan 20 10:58 AM

[boardwalk:]

The answer to all of this is simple. Coca Cola did it.......now Ebay can try it. Launch Ebay Classic, free listings with the classic search used in the good old days. Leave feedback the way it used to be. See how much revenue is generated on the back end for final value fees in this model.

On the current Ebay, continue to experiment with all of the current MBA ideas employed today............time will tell what will happen. Don't be surprised that this current trend will fail, as all the momentum will shift to the Classic side of the business! But at least that is better than giving away all that business to the other auction places like: Amazon, Bonazale and others.

Jan 20 11:35 AM

[Patricia013:]

Good article. There is no doubt in my mind and in thousands of other sellers' minds that Ebay is doomed as long as Donahoe and his crew are at the helm and as long as the aura of blatant arrogance surrounds this company. This was a harsh lesson in how fast a good company can sink with the wrong type of guidance. Ebay's board needs to be very worried about the future of this company.

Jan 20 11:54 AM

[Et tu, Brute!:]

I agree with RicRoe that J. Donahoe needs to be held accountable. His decisions at the helm were disastrous during his first year and he needs to feel the scorching heat.

The outcome is my favorite catch phrase, and that JD opened Pandora's box. I have found another two sites that I absolutely LOVE working and buying from that are thriving and I have begun a viable presence upon them. There is NO WAY I would leave now.

Having stated, or rather restated, the above, this is a thoughtful and intelligently written article and I found it refreshing in that aspect.

Jan 20 12:31 PM

[Watching De...:]

Makes a nice story, Donahoe as the Boogeyman who if vanquished would result in Ebay magically returning to its former health. Trouble with the story is that he was selected and groomed by Whitman, and the poor policies were begun during her watch. Donohoe isn't the one who lied to the media and misrepresented policy changes in 2005, that's on Meg. The failed China excursion, Ebay Express, Skype, all Meg. She started the stinky ball rolling, then went out to play.

Why does it matter? Because he's not the only one she picked. The entire organization has been permeated with 10 years of her arrogance. Another company would be crazy to partner with Ebay. Everybody in the place thinks they've been blessed by Zeus. Who could ever manage them? Only answer would be to fire them all and start over. Maybe someplace like Wisconsin where folks are less susceptible to thinking they're qualified to rule the world.

Jan 20 12:32 PM

[User 340997:]

listen to your "sellers". They are the best source of input and their advice is free

The discussion boards are full of suggestions and many, many sellers have emailed ebay. They don't want to listen.

Sellers are leaving because of this and the cost of using ebay is rediculous.

Jan 20 03:10 PM

[Henrietta:]

An unusually perceptive and reasoned piece.

Where there is no accountability there is no responsibility.

There is a 'seller czar' his name is Dinesh Lathi VP of Seller Experience and I would be surprised if he has ever sold anything on the platform. It is painfully obvious to sellers his hands on retail experience is nil. He shares the eBay management's contemptuous attitude to sellers and is incapable of any independent thought or deviation from the party line.

My response (as usual) is too long for a comment and may be found on my blog tiny.cc/AV8XZ

Jan 20 03:16 PM

[nadine:]

A very well reasoned piece. However eBay management won't listen because management has a major-league attitude problem. They think they know better than everybody, including their paying customers. They are trying to stifle the dissent by incrementally firing their current customer base and hiring a new customer base. Unfortunately for them, it seems that the first part of that plan is working better than the second part.

Any business that mistakes its customer's customers for its own, and its own customers for indentured servants, as eBay has done, definitely deserves to be called "business-challenged."

Jan 20 06:47 PM

[Moonshadow:]

eBay's problems are really basic ones, at least to this non-MBA person. In a time of economic downturn, they raised their fees significantly for their loyal small customers, without providing any commensurate increase in service. They exhibited blatant favoritism to new corporate customers (who are going to use them to draw buyers to their own websites) by giving them fee breaks and precedence in search, while scorning the customers who supported and built their website over the years.

They miss no opportunity to deride and scorn their true customer base, the sellers, by plastering their site with warnings about possible fraud and messages that urge the buyer to express his dissatisfaction. They plaster ads for the off-eBay competition all over the seller's paid listing. Sellers are expected to pay exorbitant fees for listings that, given Best Match and rolling server blackouts, might never be actually seen by another human being. eBay's search is useless to buyers as well, so many are looking elsewhere in frustration. It's pretty sad when buyers have to use other companies' search engines to find something on your site! Every change this year has served to do nothing but complicate what should be simple functions-listing and buying both. eBay has forgotten KISS. And they never had anything resembling customer service.

They put their paws all over the seller's business, dictating terms of payment, types of shipping and return policies. Large sellers have discovered they don't need the hassle of eBay-they can spend the money they spent on eBay fees on advertising for their own websites, selling on their own terms and making more profit. Smaller sellers are finding that while the up-and-coming selling sites don't have eBay's vaunted eyeballs, they don't need to have them-you don't need to sell anywhere near as much on a free or near-free site to make the same kind of profit you made on eBay. With a lot less stress, hassle and contempt to boot! Simply put, eBay is no longer a good value for the money for many people and the site is becoming increasingly irrelevant. Their insistence on a paperless payment policy in a time when people either don't have credit or don't want to use it is a prime example of that.

Know who your customers really are, and don't kick them in the teeth! eBay has forgotten that very basic rule and I think the Q4 results are going to reflect that.

Jan 21 07:32 AM

[Tony P.:]

Nice article; it shows an understanding of ebay's ills and (inadvertently ?) added a bit of humor to the situation.

"6. Eliminate your high priced consultants... "

Too funny! That means that Donahue must GO. As well as several top-level mgmt peeps.


No matter what ebay does or doesn't do, one major problem they have cannot be overcome. They have gone Corporate, on a level that defies understanding.

In the 10 years I have sold on the site, ebay grew its workforce from approx. 200 people, to over 13,000. And, we that use ebay, know that all those folks don't work in CS; that's for sure!

Loads of middle-mgmt. Loads and loads of them - all being pointy-haired bosses without A CLUE. Not an inkling of retail sales experience between the lot.

Imagine a bicycling Tibetan accountant as CEO of General Motors. Hey, he knows about Transportation and number-crunching, right? Just because he's never seen a car, let alone drove one, isn't important. Right?

So, anything they Do or Stop Doing will have to go through layers and levels of clueless mgmt that will place a drag upon 'expedient' implementation. Just the scheduling of PowerPoint presentations will simply take weeks to accomplish!

Too funny! The truth is, they could be within the middle of a major change at this moment, and no one could tell. Oh, wait... they are at that point! They've almost got that Band-Aid pulled off; a few more quarters and we can begin the scab-over. Something to look forward to.

Ebay schedules site changes in what they term as "trains". The scheduling is already set for, at least, the next six months. Every single bit of coding minutia is already planned for, down to the very second it will deploy.

And you think that Train can be stopped? Hardly. That in itself will require, at minimum, a series of meetings and PPT slides to even be brought up for general discussion at the next high-level mgmt meeting.

Too funny!

Jan 21 01:09 PM

[Philip Cohen:]

Regardless of who pays the fees, or who is now abusing the (broken) feedback system, or DSRs, or eBay’s latest “restraint on competition” attempt: the mandating of the offering of PayPal by sellers, or their failed attempt in Australia to mandate the use of PayPal [i]exclusively[/i], etc, etc, etc, the fact is neither eBay nor its sellers can survive without the confidence of buyers, and the recent application, generally, of “hidden bidders”, particularly in conjunction with the [i]absolutely[/i] anonymous alias (“Bidder [i]n[/i]”) suffered by users in Australia, UK, Ireland and the Philippines, which serves no other purpose that to hide from view the shill bidding that is undoubtedly now running rampant, is not going to improve that confidence anytime in the near future.

Having said that, I think that most eBayers now appreciate that the people currently in control of eBay are a bunch of arrogant, unscrupulous, disingenuous, (and possibly stupid) corporate snakes; it’s very difficult to keep track of such snakes as they slither through the undergrowth; and that “spinning” forked tongue doesn’t help any either!

A revised draft of my submission to government regarding eBay’s blatant facilitating of “shill bidding” by their application of the [i]absolutely anonymous[/i] bidding alias (ie, “Bidder [i]n[/i]”) in Australia, U.K., Ireland and the Philippines:

www.auctionbytes.com/f...

Sorry, but it is more than a few paragraphs. Meaningful comment thereon from mature, thinking eBayers is invited.

Jan 21 02:05 PM

[fairytrixy:]

I think it is clear as colorless glass that the way to pull this back up to snuff is for the current CEO and his team to take their fingers out of their ears and stop tring to drown out the "noise". Take a good listen to the sellers who are paying customers. Customers who were also customers of each other and consumers in general. Then invite former customers back with a new "seller rating" or "mutual feedback" policy and a nice fat discount for all sellers (the way it used to be). Then and only then will numbers start to rise again.

I would love to see a real number of sellers(customers) that ebay has lost over the past year. Due to suspension, or bailing due to sheer disgust.

Look at any seller's listings, I will not say what you will see that every single seller who is running auctions has in common. I think it will speak loud and clear after three or four or more listings.

eBay could be a hero and boost the small business economy if they want.

Change is good, the biggest change is going to be smart investors putting money into education in the U.S. (California ranks 47th for money per student in the US and this is eBays home planet,and mine as well)

Also, the collectible/vintage/an... and crafts auctions on ebay pairs so well with recycle reuse concept. I do not think anyone other than those involved really knows the economy of thrift and salvage. It is not only big but very important to a portion of the population that can resource and then make liquid these resources. Liquid cash flow that the wonderful diamond power sellers rely on as well.....this well will dry up.

Or,...maybe the "frustrated" CEO might just give it up. Either the job or his ego or the airplane glue tube or ...yeh.

Jan 24 05:34 AM

[diogoj:]

just started a website a few months ago. This site is an alternative for you to buy and sell online.

Visit us at www.barnbid.com

You can get started posting stuff for sale immediately by visiting www.barnbid.com/regist...

We have all sorts of great stuff to sellers on our site but we really need some help to get started.

Thank you

Feb 02 12:24 AM