Interview with eBay CEO and CFO at Goldman Conference

eBay's CEO, John Donahoe and CFO, Bob Swan spoke Thursday afternoon at the Goldman Sachs Internet Conference. The session was blogged live and is reproduced below:

Q: Talk about eBay's growth prospects.
A: Donahue-We are blessed to be in three very large markets.

Within ecommerce we have our core business, that has had decelerating growth we aren't happy with and we're focused on increasing/addressing. Our goal is to grow as fast as ecommerce and think we can get back to that.

Also have non-gmv businesses: shopping.com, etc.

Online payments is a big opp, growth on eBay is big opp, only 50-60% penetrated

Lastly online communications - Skype grew at greater than 100% y/y. Focus for 2008 is reinvigorating ebay core growth.

Q: How do you see Skype integrating with paypal/ebay?
A: Skype is a great standalone business

Anyone have peer to peer video on skype (2 hands -one jeff jordan)

Swan-Let's talk about margins, we talked about long-term margins in the 35% range, with Skype in the mid 20s.

Marketplace margins are at 40%, paypal is 50%, Skype is 11% margins.

Recently Paypal has gone down,

Q: In AU you are making Paypal required, can you discuss the response to that and are you doing it in other markets?
A: This was driven by our key 2008 focuses:
1. Make ebay easier to use
2. Make it safer

Paypal achieves the safety piece and they will give a blanket guarantee to buyers that they can't do elsewhere.

We'll take the learnings and applying them to other markets. You'll probably ask if we'll require paypal only. We don't have any plans to do that.

Q: Can you talk about improvements to search?
A: We are changing the search metaphor on eBay. It was time ending soonest. In a day and age when 40% of our GMV is fixed-price and we have the unique asset of closed-transaction data that can be used to make search better, we started collecting data and are moving towards moving the search on eBay to BestMatch. We factor in quality of seller, relevence and timing. Italy was one of the first places we did this and we're doing some things to try a better fixed/auction hybrid model.

Q: What are you doing to accelerate eBay?
A: Donahue-We are driving more changes than ever. There are no silver bullets, we're testing in different geos, when we find things that work, we'll do more of them and less of the ones that don't.

Q: In Korea we've seen lots of couponing. How do you feel about issuing them in the US?
A: The Korean market has been a great success study for us as we faced tough competition and had to make lots of changes. Now we're at 35% y/y growth. In the rest of eBay we have both fixed-price and auction. We're focused more on customer loyalty. With 84m active users, we think there is lots of growth in retention and share of wallet. We are trying a variety of loyalty-based initiatives. Couponing is one of them. Jenn (Jennifer Watson), let's say you usually buy 6 times a year on eBay and we see you decrease activity we would send you a coupon saying - here's $20 come back.

Expanding more in Q2 - but a very small part of volume.

Swan-It's not a new cost, it's a better/redirected marketing spend for us. (contra revenue)

Q: In the Q1 call you talked about things slowing, give us an update
A: Swan-recapped what they said in Q1. Then mentioned that CBT is a big area of growth that has offset domestic softness.

Q: Did they play a stronger role than in other Q's?
A: Yes, we were up 2% on CBT, expansion of PayPal playing a role.

Q: In terms of rising fuel cost have sellers complained about shipping costs?
A: Not really. Rising fuel has more cost on demand, some shipping carriers, but that impacts all of e-commerce. What we do see with eBay sellers is we are putting a much higher focus on their performance via DSRs - 2 of which are focused on shipping. Since we made this change there's no doubt the entrepreneurial nature of eBay sellers has kicked in and they are making a huge improvement across the site.

(questions from the audience)
Q: When you look at some of the formats other than eBay does that dilute or cannabilize core eBay?
A: We don't care - we connect buyers and sellers. If that's a classified, we have Kijiji, that's great, if core eBay, great, if ad, great, etc. What we're seeing is buyers try everything. They'll go to eBay, check out a cell phone, then they go to shopping.com, maybe click on a text ad and then come back to eBay - with more confidence knowing they checked out the entire web.

Q: It's been a few years since the roll out of third party listers like isoldit (drop off stores) - what's the growth rate of third party listers vs. individuals.
A: I don't know. There are drop shops and there are trading assistants. We don't break that out. Consumers selling on eBay continues to be strong - eBay is the only place you can turn assets to cash in 14 days.

Q: Assuming you get to a stage where you have a great search engine, what's the rational for having insertion fees at all?
A: Insertion fees have created quality at eBay - it motivates sellers to price well and put things on eBay they want to sell. This gives eBay a fresh set of inventory every 7 days and that makes eBay unique.

We took a step recently to increase the FVF vs. listing fees, we'll do more - you'll see category pricing like media/technology. Then if you look at Italy, insertion fees are quite low, very close to zero.

Auctions is still an important and unique part of eBay and insertion fees are a quality governor.

Q: What does fixed-price do to conversion ratios?
A: Good question and we talk about it internally. We will continue a strong focus on high conversion inventory. As we allow more and more larger sellers to bring more inventory on, then conversion rates will come down. We're seeing that now, listings up, conversions down (but holding up better than we thought it would). We will monitor in an intelligent way.

Q: Do you discuss Amazon (AMZN) as a competitor? Why are they doing so well.
A: E-commerce is only 5-7% of offline retail and we both see lots of room for growth. Let me comment less on Amazon and more on eBay. Our competitive differentiation/focus in value and selection. We're the place you find the lowest prices and largest selection and that's our buyer base. We tend to be the value oriented shoppers and collectors which account for roughly half of the ecommerce buyer market.

Over the next year as we improve the buying experience, our value proposition will increase.

With sellers, there's nowhere else to get this volume. What we haven't been great at is as sellers scale, scaling with them. Lots of examples of small sellers not scaling with large sellers. We are going to fix that. Amble growth available for both us and Amazon.

Q: Can you talk about Stubhub?
A: Stubhub is a fabulous business. A secondary ticket market. No way better in the world to know you want to go somewhere and get it reliably and conveniently. Of all the eBay portfolio co's, Stubhub has the best buyer experience. Doing deal with Madonna and sports teams.

Q: You have no leverage on the balance sheet - any plans?
A: (Swan) Our philosophy has been to continue to do M+A as part of our growth story, acquisitions we did in last 3-4yrs is 40% of our revenue today. We want flexibility to acquire our own shares when not valued correctly. Few months ago we had $4b in cash on the balance sheet but it was all offshore. We put a line of credit in place to give us flexibility without moving cash.

In last months we have bought $4.2b of stock - almost 10%. If we take on debt it will be part of a consistent approach to do M+A and buy stock.

Q: Can you talk about China?
A: It was a big learning experience for us - we acquired Eachnet and then re-platformed and that was not good. We have partnered, they have built new platform (based on Korea), they've launched it and we'll continue to have same JV approach in China, Taiwan and in other small Asian countries like Thailand we will look at JVs.

Swan-The best way to win long-term is to partner. We retained the rights to the CBT. That leverages our unique capabilities. That is a second way we benefit from China. Third we have a Chinese and Indian development centers where more and more of our product development is done.

Donahue-We have made substantial growth in Chinese selling into other regions.

Q: Do you view your status in Latin America as strong?
A: Mercado Libre is our partner there. (points to CEO). Very similar to our Chinese strategy, we are happy being a 20% owner and keeping a strong local team in place there.

Q: Paypal off-eBay, what are you doing?
A: The product sells itself. We go to merchants and offer an online product, pay us lower fees and drive incremental sales. We have documents from large merchants to small that proves this out (1-5% and sometimes more). So merchants off-ebay are aggressively adopting PayPal as another payment system. We bring 140m users to the sites. We drive lower rates thanks to the mix.

Swan-Scale really works in this business. Sales team approaches by vertical. If we can get the top player in a vertical we can add more. For example we added SouthWest and now we have 6-7 airlines.

Comments

[Patricia013]

This is all smoke, mirrors and bluster! As far as core is concerned they are totally on the wrong track but they'd rather die then ever admit it. I'm a 10 year seller who can't get traffic even with perfect feedback and DSR's...Best Match is seriously flawed and they know it. One wonders just how far this merry-go-round will go before it comes to a halt! Listings are taking another nose-dive. Expect yet another gimmick to milk sellers so ebay can try to look successful. Wall Street is so totally fooled by these "mental giants".

[STOP THE BOYCOTTS]

COME ON Power sellers, stop being so bitter...

did you ever think of your price points plus your selection of goods being off target??--i MEAN COME ON, if people would sell something of value, people would beat a path to your door and buy...regardless of where you sell it...

listing drop is welcome as there is SOOOO much crap out there that does NOT deserve shelf space--yes even virtual shelf space, and the more crap that is cleared away , the better the experience for those that ARE buyers


ANd if we on wall street were to take one or 20 seller's perspective and extrapolate from there...we would all be out of business!


On May 28 12:09 AM Patricia wrote:

> This is all smoke, mirrors and bluster! As far as core is concerned
> they are totally on the wrong track but they'd rather die then ever
> admit it. I'm a 10 year seller who can't get traffic even with perfect
> feedback and DSR's...Best Match is seriously flawed and they know
> it. One wonders just how far this merry-go-round will go before it
> comes to a halt! Listings are taking another nose-dive. Expect yet
> another gimmick to milk sellers so ebay can try to look successful.
> Wall Street is so totally fooled by these "mental giants".

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Ebay is nothing more than a HUGE monopoly! They feel they have the right to dictate every move their sellers make, while trying to gain more trust from their buyers. Ebay has done the exact opposite! First, they are not your buyers, they are MY buyers. Taking away someones right to leave feedback, yet allowing the buyer to leave any type of feedback they feel is appropriate is slowly backfiring on Ebay. And if the feedback changes or the outrageous fee's don't get you, just wait, PAYPAL WILL!!! Being a Power Seller myself and selling over $16,000 a month, I found myself paying $3,000+ a month in Ebay fee's and another $7,000 a month in PAYPAL'S NEW 21 DAY HOLDS!!! To make this short and sweet, the $7,000+ that Paypal held, they can issue refunds to those buyers. I REFUSE TO SHIP MERCHANDISE THAT I HAVEN'T BEEN PAID FOR, PERIOD!! EBAY AND PAYPAL'S NEW 21 DAY HOLDS ARE NOTHING MORE THAN A SCAM!!! Basically, they say they will hold the funds for 21 days or until you receive positive feedback, BUT IF YOU SO MUCH AS BREATH WITHIN THAT 21 DAY PERIOD, GUESS WHAT?? EBAY AND PAYPAL NOW HAVE THE RIGHT TO HOLD YOUR FUNDS FOR UP TO SIX MONTHS. ISN'T THIS FUN?? When I refused to ship items that Paypal held the funds for, Ebay then suspended me. The same day, Ebay and Paypal sent emails to every customer telling them to file a dispute and request a refund. Several of my customers emailed me this email and it disgusts me! Being a Power Seller, I sold up to 100+ items week. So, now I have almost 100 sellers that have paid for items that will never be shipped to them. What is even worse, when I log in to Paypal I now see they have released some of the funds that were on hold and didn't refund the customer. Why? Paypal and Ebay now say I owe them over $11,000.00 and my response to that is "NO, NO, NO EBAY AND PAYPAL, I WOULD NEVER KEEP YOUR MONEY, I'M JUST HOLDING IT FOR 21 DAYS. THIS IS BETTER FOR YOU AND WILL HELP YOUR CUSTOMERS TO FEEL SAFE. IF YOU BREATH DURING THIS 21 DAY PERIOD, IM SORRY TO SAY I WILL HAVE TO KEEP THE FUNDS FOR UP TO SIX MONTHS OR UNTIL THE MATTER IS RESOLVED. YOU WILL SEE IN THE FUTURE THIS WORKS BETTER FOR ALL THE EBAY SELLERS AND BUYERS. How does it feel Ebay and Paypal? You will not get a dime from me, ever! If anyone knows of a class action suit that has been filed please let me know and I will be one of the first to jump on board!! No more will Ebay or Paypal take advantage of me, my customers or MY MONEY!!

HEADS UP-
If you have a Bank of America account, watch out because Paypal uses Bank of America. If you try to contest the charges that Ebay and Paypal will try to take from your account once you have been suspended, it will be a lot harder because BOA is PRO-EBAY and Paypal. In my opinion, they are all three scum of the earth!! You can Google Bank of America, Paypal and Ebay and you will get page after page after page of complaints! Be careful!!
Blondie