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This is part one of a two part series covering eBay's Q2 results which were released last week Wednesday (July 20th, 2011). Every quarter we provide a highlights of eBay (NASDAQ:EBAY) and Amazon's (NASDAQ:AMZN) results from a seller's perspective. eBay revealed quite a bit of information so I split this report into two segments:

  • Part I - Q2 by the numbers
  • Part II - Paypal goes brick-and-mortar and eBay's Holiday Push

eBay's Q2 Highlights

eBay announced a strong Q2. Before digging into some of the specifics, here are some highlights that I picked out that are of most interest to sellers:

  • eBay US GMV was up an impressive 14% y/y
  • Intl GMV grew 8% y/y (ex-fx) - seems that Korea is still weighing this down as we see much better growth in non-us, but don't have any exposure to Korea/gmarket, but eBay doesn't break out so hard to say.
  • Units sold increased 7.7% y/y, up from 6.5% last Q
  • Marketplace active-users was still light - up 6% y/y to 97.2m
  • Trusted sellers (eTRS) account for 38% of GMV in 3 largest markets
  • eTRS SSS grew 22% y/y - in other words this group is growing substantially faster than Above Standard Sellers.
  • Paypal had first $1b revenue q!
  • Paypal passed 100m active users for the first time.

eBay vs. E-commerce

When Donahoe took over eBay, he set a multi-year strategy to turn around the marketplaces business and a big milestone in that strategy was to get the business to grow at least as fast as e-commerce. As you can see from this graph, eBay has hit that goal with their Q2 results! Note that ComScore hasn't released their Q2 e-commerce number and that's usually what people measure until the US DOC comes out with theirs much later. Even if e-commerce grew 14% (as reported by Mastercard's early data), then eBay was still there.

Ebay_q2_1

eBay management attributed the growth to price changes (which we are now annualizing) and all the other changes such as duplicate listing policy, free shipping, eTRs, etc.

Domestic vs. International

This next chart shows three segments: eBay US, eBay Intl and total eBay y/y growth. You can see that since Q410, eBay international GMV growth has been struggling while US has been on a nice rebound. eBay doesn't split up different regions, but they have mentioned challenges with their Korean unit/gmarket in the past that I suspect continue to give them international headwinds. At ChannelAdvisor we're seeing strong growth in Europe/UK and also in Australia that is more in line with the US growth.

Ebay_q2_2


A deep dive into categories

One of the most popular parts of our quarterly updates is the category data. This quarter we're expanding it to give even more detail.

First, here's a look at eBay's Q2 2011 Category performance organized from largest category to smallest in absolute GMV.

As you can see eBay has 5 > $1B/Q categories and 20 > $1B annualized GMV categories which is an impressive portfolio and a lot of opportunity for retailers.

Ebay_q2_3

This next table organizes the categories by y/y growth rate and bucket-izes them into three buckets:

  1. Leaders (green) -These categories are growing faster than the rate of e-commerce. In our SSS data we have been calling out the super-performance of the P+A category and Q2 continued that trend.
  2. Neutral (yellow)- These categories grew at/around e-commerce. (note that CSA stands for Clothing Shoes and Accessories) - a big investment area for eBay that I would think would be growing faster, but seems to stuck in the 10-12% range.
  3. Laggards -These categories are growing below the e-commerce rate. I thought it was interesting that CE saw a 3% growth which is well below e-commerce growth. Amazon and BestBuy have high concentrations of this items and it will be interesting to see if there's any color on what's going on there from a secular perspective or if they are taking share from eBay.

Sellers can use this data to benchmark their y/y performance vs. the overall category and also use the data as a way to identify new rapidly growing categories they may want to explore to diversify their offerings (gold coins anyone!?)

Ebay_q2_4

The category tables above show the Q2 2011 snapshot of a category. We've had several requests from customers to show more category trend data, so we are introducing two new eBay category charts that show eBay's largest and smaller categories over the period of 5 quarters to see the trends.

Here's the chart for Home and GArden, Parts and Accessories, CSA, Computers, Sports and Business/Industrial:


Ebay_q2_5

Here you can really see Home and Garden's clear acceleration path with GMV in Q2 already accelerating past the seasonally robust Q4. Also notice the performance of the P+A line where you can really see the acceleration since the parts finder was broadly adopted in Q310. Finally, note that CSA is still below Q4 levels.

To keep the chart clean, I put the other categories on this chart:


Ebay_q2_6
In this chart you can really see CE fall off post Q4 and none of these smaller categories is really showing crazy signs of growth over time like you see with H+G, P+A.

The bear case - increased sales and marketing

Reading through the stock analyst reports, a couple of analysts (Jeetil@DB and Herman@SIG) noted an increase in eBay's Sales and Marketing expense that I thought was interesting and warranted a look at. This chart shows eBay's GMV growth (blue line) charted against the sales and marketing growth (red line).

Ebay_q2_7

You can see above that eBay is investing a ton in sales and marketing, but not generating an equal amount of growth in GMV. The last two blue datapoints are estimates, so we'll have to see how those come in. This next chart shows the same data but as a % of transaction revenue:

Ebay_q2_8

You can see from this chart that eBay has essentially doubled sales and marketing as a % of transaction revenues from Q2 10 to Q2 11 (again the last two data points are estimates, not actuals). This is interesting because I haven't seen a dramatic increase in eBay search spend or online ads, so I'm not really sure where the incremental spend is going. I believe the seller eTRS discounts are contra-revenue so it wouldn't be there...

In any case, tare two conclusions you can make from this data:

  • Bear - eBay is having to invest substantially in S+M to grow GMV a little bit which isn't sustainable.
  • Bull - eBay is investing in front of Q3/Q4 and we'll see GMV growth pop up in those Q's which will justify the front-loaded S+M investment (or maybe it won't show up until next year which is frequently the case of subscription/SaaS businesses which is a bit apples and oranges.

I'd be interested to hear your thoughts and if you are seeing any benefit/signs of increased marketing spend.

That's it for Part I

Up next - Details on eBay's big Holiday 2011 plans that may surprise you (they did me!) In post II, we'll detail some of the other non-Q2 news that came out of the Q2 news.

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

Source: Digging Into eBay's Q2 Earnings, Part I