eBay Floundering Again

| About: eBay Inc. (EBAY)

Summary

eBay's recent results were unimpressive, and concerns about its ability to deliver loom large again.

Right now, the market is not happy with the results, and the stock fell 14% post the results announcement.

EBAY would need to do a lot more to convince the market that it has strong growth potential.

After spinning off PayPal (NASDAQ:PYPL) last year, the market was worried about eBay's (NASDAQ:EBAY) ability to sustain sound performance. After a couple of quarters of impressive results, the market's worries appear to have caught up with eBay. The recent results were unimpressive, and concerns about its ability to deliver loom large again.

eBay's Financials

eBay's Q4 revenues were flat for the year at $2.32 billion, in line with the Street's expectations. EPS of $0.50 also was in line with the market's forecast for the quarter.

During the quarter, the gross merchandise volume (GMV) of goods sold came in at $20.7 billion, translating to $1.9 billion in revenues. Its active buyer base grew 5% over the year to a total of 162 million at the end of the year.

eBay ended the year with revenues falling 2% over the year to $8.6 billion. Transaction revenues brought in $6.83 billion and marketing services and other revenues contributed $1.76 billion to the year. eBay's full-year 2015 earnings came in at $1.83 per share. One silver lining was StubHub's growth. It reported a growth of 30% in GMV last year to more than $1 billion and brought in $725 million in revenues.

The year's performance was hurt due to a security breach that forced nearly 112 million customers to change their passwords. Changes in the Google (NASDAQ:GOOG) (NASDAQ:GOOGL) algorithm also resulted in eBay's results being ranked lower in search result rankings during the year.

For the current quarter, the company forecast revenues of $2.05-2.1 billion with an EPS of $0.43-0.45. The Street was looking for revenues of $2.16 billion for the quarter with an EPS of $0.48.

eBay's Worries

Besides the outlook, the market is not happy with eBay's competition. It has not just the constant shadow of Amazon (NASDAQ:AMZN), but several other worries. One big concern is eBay's consumer dissatisfaction over sales fees. The company charges a 10% fee whereas niche sites such as Reverb.com, a musical instrument sales site, charges a 3.5% flat fee per item sold. Amazon's selling fee ranges from 6% to 15% depending on the product sold through its site.

eBay also is lagging in its social connection. Smaller players like Etsy (NASDAQ:ETSY) and Poshmark allow users to share purchases and comments on social platforms - something that eBay doesn't allow. Then, there is Alphabet. Not only does eBay get hurt by Alphabet's algorithm changes, but Alphabet's Buy Now button released last year makes those search result rankings count even more. Google's mobile search results now show a buy button that simplifies the process of purchasing directly through a search result.

eBay's Marketplace Improvements

To counter these pressures, eBay has been investing in its marketplace site. One big move has been in the form of data structuring where products are organized in catalogs. As of December last year, the company announced that 37% of relevant listings had been migrated to this Structured Data set-up. A quarter ago, that number stood at 28%. By the end of this month, EBAY expects it to grow up to 60%. It believes that the data structuring is helping it in improving conversions and drive higher organic traffic from searches.

eBay also is improving the user experience for its seller community. It recently launched Sellers Hub, an analytic tool that provides a detailed analysis on sellers' listing performance along with tools for product management. eBay released the product in October last year to mixed reactions. While the Sellers Hub does offer a better mobile experience and detailed statistics, some believe that it also adds to the workload of the seller because of the number of steps needed to reach the right place.

eBay would need to do a lot more to convince the market that it has strong growth potential. Right now, the market is not happy with its results, and the stock fell 14% post the result announcement. It is currently trading at $24.24 with a market capitalization of $28.6 billion. It touched a 52-week high of $29.83 in December last year and a 52-week low of $21.52 earlier this month.