Seeking Alpha
Profile| Send Message| ()  

On April 18 , 2012, eBay (EBAY) released their Q1 2012 results.

The results were very impressive - all three business units (PayPal, GSI and eBay Marketplace) outperformed Wall Street's expectations and eBay's guidance given earlier in the year. Since we're focused on the marketplace part of the business we'll cover that in detail. Also, there's a ton of excitement about PayPal in stores which is great, but I think it overshadows some of the great things going on in the marketplace side of the business which is more impactful short-term to retailers of all sizes.

This quarter there were some really interesting new data-points and hints about the future that haven't been covered by Wall St. or the mainstream press that I think many sellers will find interesting, so we'll focus on those. Also, as you read on you will find that we believe they foreshadow a great 2012 for eBay (and eBay sellers).

eBay vs. Wall St.

First, to put the quarter in context from a Wall St. perspective, this table shows some of the key metrics, eBay's guidance, Wall Street's expectations and how the company performed against those two expectations: (click to enlarge)

Ebay_q1_12_wall_st

As you can tell, for all of the marketplace metrics we watch, eBay exceeded expectations. Not only did they exceed expectations, but I'd say they pretty much blew them away!

So, congratulations to both our friends at eBay on a huge quarter and also all of the sellers that participated - it looks like we're teeing up for a strong 2012 for eBay.

Regular readers will note that we've been reporting a substantial uptick in y/y growth for eBay in our regular Same Store Sales (SSS) data. You can read the March data here. It's good to see that the upward momentum is not just isolated to our customers, but starting to work its way throughout the marketplace.

eBay Marketplace metrics of interest

In the table above, I wanted to call out a couple of the metrics and add some others that were mentioned on the conference call that I thought were very interesting:

  • GMV Growth - The one metric we are laser focused on is GMV growth. eBay's non-vehicle, ex-fx GMV growth came in at 13%, blowing away Wall Street's conservative 9% estimate.
  • Active User Growth - Aside from GMV growth, the next most exciting metric was user growth which came in at 7% - the highest level it's been since...well, since I can find data for it going back to 2007/2008. This hints that the eBay marketing they started ramping up in Q4 is taking root and bringing new buyers into the ecosystem. It will take a year to see if these buyers stick around and keep buying, but acquisition of course is an important first step.
  • Sold Item Growth - This metric isn't terribly useful, but it is good to see it trending up to 17% as it has languished in the last couple of quarters.
  • Fixed Price - Fixed price GMV grew 18% and now represents 64% of GMV.
  • Auctions - Auctions grew a meager 3% and now represents 36% of GMV. This is actually better than I would expect based on our data.
  • TRS - (TRS=Top Rated Sellers) I believe this is the first time they gave this level of detail, but in comments on the call JD mentioned that TRS now represents 50% of eBay's GMV and is growing at 22% y/y.
  • Free Shipping - 45% of Q1's GMV had free shipping which is up 16% y/y.

What's interesting is that the ares eBay is focusing on are growing very nicely. We'll spend a fair amount of time in this post digging into the implications of that.

What is Active Buyer Growth?

Before we dig into what some of the growth rates mean, I did get a bunch of questions off a comment that JD made. The comment was:

He was showing me some data yesterday where our active buyer growth is up 9.5% in the core Marketplace business.

The 'he' in that sentence is Devin Wesig, eBay's marketplace president. Some people assumed that JD misspoke and meant the 7% active user growth. but what I think he was talking about (speculating since there wasn't any color) is what I would call GMV/buyer y/y growth. Some companies call the GMV/buyer GMB (Gross merchandise per buyer) - I usually avoid that because it sounds so close to GMV you spend 80% of your time clarifying (Did you mean B or V? Bravo or Victor?).

Anyway, what I think JD was saying is that buyers are buying more on eBay at a y/y improvement of 10%. It's great they are measuring this and to put it in perspective Amazon (AMZN) is growing the same metric at about 30-40% y/y with programs like Prime, so there is a ton of room to run here.

eBay vs. e-commerce growth rates

Now, here's a chart we usually have that shows eBay's growth rate vs. e-commerce.

Ebay_q1_12_ecomm_growth_chart

eBay is the blue line and e-commerce is the red line. When you look at that, you may say: "Ok, great, eBay is growing 13% and beat Wall Street's weak 9% prediction, but they are still 5% slower than e-commerce - so what's the big deal!?" If you said that, you'd absolutely be right, but what's interesting and I think a bit exciting for one of the first times in a while, is that pieces of eBay are:

  1. Becoming material - meaning they are really moving the needle.
  2. Growing significantly

You can see this on the chart with:

  • The green triangle is the fixed-price growth rate
  • The 22% marker is the growth rate of eBay TRS
  • The 22.4% is the growth rate that ChannelAdvisor's customers are enjoying based on our SSS - you can tell they are largely TRS and fixed-price oriented os are in the eBay sweet spot of growth right now.

As someone that is intimately involved in a business that deals with this type of portfolio of businesses growing at different rates, I think it's important to really dig into what this means going forward. Before we do that though, we always get positive comments about our detailed category analysis on the Q. So let's tackle that first.

Detailed eBay Marketplace Category data

First, I always get some negative comments on this data speculating that we are making this data up. Let me be clear - eBay releases this data with their Quarterly data and Wall St. doesn't cover it for whatever reason. It does come 100% from eBay and is part of their quarterly metrics package available at investor.ebay.com - this is not ChannelAdvisor data, but it is our analysis of eBay's non-GAAP metrics data released by the company.

That being said, here is the eBay category results for the first quarter, sorted by fastest growing category to lowest.

Ebay_cats_growth_rate.jpg

On the call, eBay talked a lot about Tickets, CSA (fashion) and P+A which certainly are great categories. But what I think is interesting is that eBay never highlights the Home and Garden category and that puppy is off to the races with a 22% growth rate. But wait, it gets better...

In this chart, we sort the categories by size->

Ebay_cats_size

So when you put this chart together with the growth rate you see that not only is H+G the fastest growing category (22%), but it's the largest category! In fact, if you round up just $6m, this category has hit a $10b annual run rate - a first for any eBay category.

That's pretty amazing. To put it into perspective, according to Internet Retailer:

  • Sears (SHLD) is a $3b/yr online business
  • JC Penny (JCP) is a $1.5b/yr online business
  • QVC is a $3b/yr online business
  • Home Depot (HD) is a $500m/yr business
  • Lowe's (LOW) is a $200m/yr business

eBay's H+G business at $10b is bigger than Sears+JCP+QVC+HD+Lowes and that leaves a solid ~$2b on top of those!

What does this mean for the rest of 2012 for eBay? It's all in the mix!

One thing that I haven't seen the analysts on Wall St. think about is a mix analysis and what that means going forward. For example, when eBay tells us data points such as Fixed Price is 64% and growing at 18%, you can start to make some pretty good forecasts based on the different components of the business and their various growth rates. For example, here's a simple model that takes the 18% FP growth rate and the 3% auction growth rate from Q1 and projects them forward into Q2-4:

Mix_one_fp

As you can see the overall GMV growth rate accelerates over time because the way the math works. If FP is growing at 18% and Auctions at 3%, then not only does FP have to increase as a percent of mix (goes to 67% in Q4 in this model), but as that slower growing piece gets smaller, the overall growth rate picks up pretty dramatically.

This model holds those rate steady. Actually the fixed-price rate has been ticking up a couple of points a Q. If we take a more aggressive approach and grow FP 20%/22%/24%, then you can really see how the overall (in green) growth rate accelerates:

Mix_two_fp

Another interesting datapoint JD revealed was that in Q1 2012, 50% of the GMV was from TRS and it is growing at 22%. Here's a mix model that works backwards to last year and then projects that growth rate forward:

Mix_three_etrs

Here you can see that if we hold the TRS growth rate steady, it will result in 53% of TRS by Q4. Also, we can infer that non-TRS only grew at 3%.

The above model holds the 22% steady and since we have only the one datapoint, it's hard to know what to project there, but given our SSS data which we believe is best represented by this mix model (TRS sellers tend to be FP as well and larger in scale which more closely matches the ChannelAdvisor customer set). So if we take what we know there and give the growth rates a bit of a nudge as we have seen:

Mix_four_etrs

So you can see both from the FP and the TRS models, that even if eBay doesn't change the growth rates, the simple math will result in great growth overall. However, if they can get the growth rates of FP/TRS to continue to grow, you could see the entire marketplace north of 15-17% by the end of the year.

Is Cassini close to being released?

Background: We first covered eBay's top secret search project, Cassini, here.

As you can tell, this Q was a treasure trove of new information and another tidbit that is near and dear to our hearts was leaked by JD in these two snippets (note if you want to read the entire transcript - which I highly recommend - you can find it at SeekingAlpha here.)

Historically, the search on eBay has been matching keyword match in the title, and that's really how we recall search on eBay. What Cassini will now do is will search the entire listing for search terms and match the search query with that. So we think that will improve the accuracy and comprehensiveness of search recall.

I'll also say we have a couple of -- a nice series of product enhancements during the year. You're going to see some really, really good stuff around the checkout experience on eBay. We're finally going to -- given the fact that we own eBay and PayPal, we're going to improve the checkout experience on eBay. You're going to see some search improvements. You're going to see some fun areas and discovery, and so things -- more to come on a steady stream of product enhancements on eBay. So all in all, we're feeling good about that business.

Reading the tea leaves, these new innovations must be close to coming out for JD to be starting to create buzz on them, so we're on the edge of our seats to see what eBay has in store here. If eBay can really nail the cart and checkout experience while significantly improving the search experience, you can imagine the growth rates on TRS/FP could move up faster than we've modeled.

Up next...Amazon!

Now that we have had eBay surprise to the upside, all eyes will be on Amazon when they report on April 26th.

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

Source: Analysis Of eBay's Awesome Q1 2012 Results From A Seller's Perspective