Digging Into eBay's Earnings

Apr.28.11 | About: eBay Inc. (EBAY)

Today, eBay (NASDAQ:EBAY) announced their Q1 2011 results. The results were pretty much in-line with what Wall St. was looking for, but as usual had some interesting aspects of the results from a seller's perspective. The highlight was that US GMV shot up to 10% y/y growth, which is very interesting and something we'll dig into.

In this post we'll first take a quick run through the PayPal and Mobile highlights and then spend the bulk of the time on the core marketplace business. We'll conclude with some other observations and a view of the growth rates of e-commerce, eBay and Amazon.

Mobile and Paypal

Here are a couple of highlights relevant to sellers on the Mobile and Paypal topics:

  • Paypal is on pace to triple mobile payment volume in 2011 to $2b (this must not count eBay GMV).
  • Paypal will hit 100m users sometime in Q2
  • Paypal on-eBay coverage is at an all-time high of 70.8% - The eBay cart only supports Paypal and the eBay checkout makes non-Paypal very very painful on top of that, so I imagine this will spike to the high 90's (head's up Wall St readers, I don't think your models anticipate this) by Q3.
  • Finally, eBay came out with a new marketplaces mobile prediction - a doubling in mobile GMV from '10 to '11 to $4b.

Marketplaces

Overall eBay revenue was up 16% (14% organic), with marketplaces coming in at 11%. Within marketplaces the GMV growth rates were:

  • Overall GMV - 8% y/y
  • US GMV - 10% y/y
  • International GMV - 6%

When looking at the US, eBay's GMV growth rate came pretty much in-line with e-commerce for the first time in years which was one of Donahoe's goals when he took over the business.

You can see them closing the gap in this graph:

Ebay_1

The US 10% number was definitely an acceleration and great to see. eBay attributed the growth to increased ASPs due to some search cleanup of low-ASP items. They also (couldn't tell if they were joking or serious?) mentioned gold bars and ipad2s were big growers. This is an important number and we'll dig into it in the category data.

A couple of interior numbers behind GMV were lower than usual which supports the 'move to high ASP' theory:

  • Sold items grew at only 6.5% (the lowest I've ever seen since they started reporting this number, but I need to double check that - it's definitely the lowest in 2yrs).
  • Active user growth continued to be slow - increasing 5% to 95.9m users

If your GMV grows 10% and sold items grow at 6.5%, then you have to make up that other 4% in an ASP increase. ASP increases on eBay don't mean that people are paying more for the same item, but are more mix related - e.g. if you sell more B+I items ($1k ASP) vs. cell phone accessories ($5 ASP), your overall ASP will move north.

Another way to slice eBay is to look at the different formats:

  • Fixed price grew 13% y/y and auctions were only down 2% - this is actually a huge improvement and perhaps auctions are stabilizing somewhat as they had been down as much as 20-50% in past Qs.
  • Fixed price represented 57% of sales and Auctions 30% - this seems to be a 60/30/10 (vehicles) mix that we are settling in at.

Finally one of the most interesting sets of data I dig into each Q is the category details. I like to look at the data first by overall size (large to small) and then by y/y growth rates. Note that these are global numbers. At our recent Catalyst event, many attendees gave me feedback that they appreciate us spending time on category analysis as they can't find it anywhere else, so I'm going to dive into this deeper than in past quarterly summary blog posts with the hopes it gives you more insights into what's going on.

eBay categories by size

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eBay categories by growth rate

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eBay category analysis

If you take eBay's overall growth rate of 10%, you can put categories into a bucket above that line (fast growers or leaders) and below (laggards)

  • Q1 2011 category leaders - Tickets and travel, coins and stamps, BI, P+A, phones, HG and Jewelry were leaders in eBay's y/y performance.
  • Q1 2011 category laggards - CSA, collectibles, CE were anemic and BMV/video games showed severe negative trends.

Some of these warrant some deeper look as they tell the story behind what's going on inside eBay's portfolio of businesses:

  • BI - This category appears to be on fire for eBay, logging 16% growth and enjoying its largest ever quarterly revenue at $721m - which was up 10% from Q4 - very unusual in the world of e-commerce. Unfortunately I don't have a lot of visibility into this category as we don't do a ton here at ChannelAdvisor. This category does have a large vehicle piece so maybe there's something going on with businesses buying used equipment more due to the economy (pure speculation on my part).

This chart shows how BI has really been accelerating in the last 6 months. I'll try and dig into this a little more when time allows, if anyone has any thoughts, would love to hear them in comments.

Ebay_5

  • Tickets - This category shot up 26% y/y, its fastest growth in over a year and eBay's fastest growing category. When I looked at the data, Q1 2010 was very very low for tickets and travel so Q1 2011 was a more normal level. It looks like there was just a blip in early 2010 in the category and it's back on track. (click to enlarge)

Ebay_4

  • Coins and stamps - This one has me scratching my head with its 24% growth as every coin and overall collectible seller I know is seeing flat to down trajectories. Again, we are not very active in this category at ChannelAdvisor, but when I look at the eBay data over time, it averages 5% growth except for the Q1 pop. (speculating again) Perhaps the record highs in gold prices have folks selling/buying gold coins? Supporting this theory is when you look at the other collectibles categories (collectibles, antiques and art), they were more on the laggard side which I'd expect.
  • CSA - eBay has been really focusing on this category for over 2 years now and it's unusual for it to have slowed so much this Q. Comscore comes out with category data later in Q2, so perhaps there was some macro thing going on here. ChannelAdvisor is very active in CSA and we saw much higher growth rates here so perhaps there's a transition from 'consumer sellers' to large merchants behind the slowness.
  • CE - Like CSA, I was surprised to see CE on the laggards list because a) we did much better than this at CA and b) This is where the ipad2 lives that management was saying was a big driver of growth. I come away with the same conclusion as CE - transition going on in here.
  • BMV and video games - eBay has pretty much ceded these categories to Amazon and buy.com. Video games is tough as eBay tends to benefit from new console releases due to the short supply. We'll probably have to wait until Wii2 hits in 2012 to see any action in this category.

Comparing growth rates - e-commerce, eBay and Amazon

When compared to expectations and historical growth rates and even e-commerce growth rates, this was definitely a great quarter for eBay - they closed the gap on growth with e-commerce which is great to see.

However, the e-commerce elephant in the room is Amazon (NASDAQ:AMZN) and their Q1 (details at sister site Amazon Strategies) had 38% growth overall with EGM globally (where the bulk of the Amazon/eBay category and marketplace overlap exists) significantly higher than that.

This chart shows the relative domestic growth rates and illustrates that eBay needs to continue to close the gap, not only with e-commerce growth, but Amazon to avoid losing significant share over the longer-term.

Ebay_6

Conclusion

To be 100% clear - we continue to recommend to sellers/retailers that they leverage both eBay and Amazon. Even though it's growing much slower, globally, eBay is 5-6X the size of Amazon's marketplace and represents a growth opportunity a) if you are not selling there as you are missing a big chunk of e-commerce and b) most of our customers on-eBay are outpacing eBay's macro growth rates by taking internal share. eBay has 19 categories with > $1b annual sales - every retailer needs to have eBay as part of their mix.

That being said, we feel it's important to understand the underlying trends of all of these businesses, be they positive or negative because it makes us smarter online retailers and helps us achieve those higher growth rates.

As always, I'm interested in hearing what everyone else thinks about eBay's Q in comments.

Disclosure: I am long Amazon and Google. eBay is an investor in ChannelAdvisor where I am CEO.