eBay Still Hazy

On Wednesday, eBay reported a third consecutive flat quarter with Q2 revenues of $2.2 billion, an increase of 20% over the year. The Street was expecting similar revenues, so there were no surprises.

Marketplace transactions brought in $1.5 billion - a 57% contribution and an increase of 13% over the year, but a 2% sequential reduction. Active users grew by 1% over the year to 84.5 million. New listings increased by 19% over the year and 3% over the quarter to 666.9 million.

PayPal’s $0.60 billion revenue represented an annual increase of 33%. Total payment volume grew 35% over the year to $14.9 billion, and global accounts increased by 19% to 62.6 million. PayPal is fast becoming a more important business for eBay than its flagship Auctions / Marketplace business.

Skype contributed $0.14 billion, an increase of 51% over the year and 8% over the quarter. Skype added 29 million registered users for the quarter, taking the total base to 338.2 million.

Overall, international markets contributed 54% of overall revenue.

The company gave Q3 revenue guidance of $2.1 billion-$2.15 billion with EPS of $0.39-$0.41. For the year, it raised revenue and EPS guidance to $8.8 billion-$9.05 billion and $1.72-$1.77, respectively.

Even though CEO John Donahoe called the quarter a solid one, there are several areas of concern. The faster growth of lower margin segments – namely PayPal and Skype - has started impacting overall margins.

On the positive side, eBay did make several significant advances during the quarter. The site is easier and safer to use, and a modified pricing structure and incentives for sellers have improved the value and selection offered to buyers. The company rebalanced its pricing by migrating from insertion fees to final value fees, offered free gallery photos in the U.S. and the U.K., rewarded sellers who provided the best buyer experience, and also offered sales ratings-based discounts to qualified power sellers. The company extended PayPal’s leadership position in online payments both on and off eBay and added a credit facility to PayPal through Buy Now Pay Later options.

Despite these service innovations, the weaker economic conditions are affecting eBay’s performance. Gross Merchandise Volume [GMV] for its marketplace segment stood at $15.7 billion, an 8% increase over the year but a 2% reduction over the quarter. The reduction was due to customers’ shifting to lower-priced goods, a modestly lower take rate, higher discounting for the power sellers who continued to improve its service levels, and weakening car sales, which had grown 7% in the previous quarter.

EBay may be getting more listings and improving security for its users, but what it is still not managing to fix is the core user interface and the ability to deliver a personalized user experience.

I had envisaged a turnaround opportunity for eBay with the departure of Meg Whitman. Unfortunately, John Donahoe’s game plan continues to be hazy. Meanwhile, Rajiv Dutta, the head of Marketplaces, will step down in October, and with that, there might be a ray of hope.

Given that eBay still hasn’t managed to hive off Skype and acquire more relevant vertical search engines and communities, I wouldn’t recommend the stock. It rose 5% to $28.23 during the regular trading session but fell 6.6% to $26.24 after market close.

Disclosure: None

Comments

[37gasser:]

"On the positive side", "added value & selection", "for the buyer", "due to modified pricing structure & incentives", this looks nice on paper but is simply false. New pricing structures, new feedback policies & the threat of Paypal only transactions, are a distinctive disincentive to sellers, so are having the opposite effect & limiting buyer choices. Just take a moment to look through some of the comments made by buyers on the feedback forums.
The above quotes are either pure propaganda or ignorance.
John Swenson

2008 Jul 18 06:56 AM

[xebayaddict:]

I KNOW you must be an eBay power seller and a frequent buyer on the site since you feel qualified to post the following paragraph:

"On the positive side, eBay did make several significant advances during the quarter. The site is easier and safer to use, and a modified pricing structure and incentives for sellers have improved the value and selection offered to buyers. The company rebalanced its pricing by migrating from insertion fees to final value fees, offered free gallery photos in the U.S. and the U.K., rewarded sellers who provided the best buyer experience, and also offered sales ratings-based discounts to qualified power sellers. "

Please post your power seller user ID and if you have one, your buyer ID to support the above claims. You're not entitled to state that the site is "easier and safer to use" unless you can provide proof. Please give us your positive experiences regarding how Best Match, the new fee structure, feedback changes, DSR ratings, etc. have improved both YOUR seller and buyer experiences on eBay.

2008 Jul 18 08:39 AM

[Silver Fox:]

eBay is my job - has been for over 10 years, and I'm afraid the end is near. I sold my stock 2 weeks ago and now we're looking for alternative auction sites to carry our products. The percentage they charge has grown too high for the current sales which have declined to about 60% of what they were consistantly for the previous 5 years. I know it would be hard to do, but eBay needs to quickly (very quickly) step up, say we goofed, and say they are changing back to good ol' eBay. Drop the DSR's, drop the feedback changes, and get rid of their ignorant Best Match system. That is the only way this company will be able to make it. Hopefully they haven't burnt too many bridges with all of the hard working sellers who joined me a decade ago and made eBay what it was a year ago. What it is now -- well, for that, the execs can take all the credit.

2008 Jul 18 10:28 AM

[delta 777:]

as an ebay buyer of many years and many dollars, I can attest that the site has been rapidly deteriorating...fewer antique items of quality, better sites are around for used stuff, and Amazon and other Google search suppliers far better for new items (and used), without the quality questions and uncertainty of what you may end up with ebay purchases....I still use it as a useful source but perhaps only 10% of former purchase volume.......(hope ebay has a strong enough porn backbone for survival??)

2008 Jul 18 10:58 AM

[Oakstrom:]

IF you are going talk about Ebay from the a buyer and seller perspective, then please please first actually buy and sell there regularly for at least a year. I would say buy at least 100 items and sell at least 100 items.
Your entire post reads like Corporation Propaganda or put it another way Ebay Paid Advertising.

2008 Jul 18 11:42 AM

[Et tu, Brute!:]

Oakstrom is dead on!

Corporation Propaganda.

This article and others similar showcase a complete and absolute cluelessness regarding what is actually going down at ebay. ebay is tanking by their own hand!

Corporate has turned on the entity that built it in the first place. This entity has now left and taken the buyers that loved them with them!

THE BUYERS CAME BECAUSE THEY LOVED WHAT WAS THERE ON OFFER!

When will Wall Street and such airhead reporters as this get a clue?

And the stockholders? Are they asleep? Surely longtime stockholders have some fundamental idea regarding the workings of ebay!

Wake up, Stockholders. SELLERS old and recent, who have in the past purchased stock themselves, have DUMPED their stock! This in and of itself is very telling.

Repeatedly this corporation has NEVER attended the input of its core foundation, the sellers! And from all my research to present, when the voice has been strong and virtually unanimous, they have proven RIGHT!!

2008 Jul 18 12:13 PM

[Dream On:]

Oh give it up guys. We have been screaming our heads off for almost 6 months now and been ignored. We tried to let folks like this author know what was going on over and over. If anyone had listened to us they would not have been shocked by the figures. If eBay had been a teeny bit more open and let the figures just for eBay US and UK slip out the picture might have gotten crystal clear.

Sellers boycotted, sellers left, sellers have downsized and are moving items to other e-commerce sites and to their own websites as they are getting them up and running.

Deals with non-selling mega-sellers such as Buy.com did not fill the vacuum, it only kept up their listing numbers (which seems to be all most reporters look at). It is simple math a child could understand. Yet well educated adults just can't seem to grasp it.

Thousands of small and med sellers (and some big sellers, too) left the building = less items to sell

Less items to sell = lower listing numbers

+ Add Buy.com, GM & shopping.com but then - subtract them as they pay no fees and bring in few sales so they = 0 in the scheme of things

So you are still where this problem began
Less sellers = less items = less sales = less GMV = yesterday.

2008 Jul 18 12:35 PM

[Watching th...:]

In areas that I was purchasing in, numbers are down along with the quality and legitimacy of the items within the catagories.

Ebay can say what they want. Everybody is entitled to voice an oppinion. Time will tell.

I have seen a downgrade. And if you read the Ebay user agreement they state in no uncertain terms that they wash their hands of the transactions between buyer and seller.

Companies come and companies go.

What ever happened to the addage :

" The customer is always right? "

Their user agreement seems to point to an attitude of let the customer be damned. Again if you read this policy Ebay could care less if you are a buyer or a seller.

Take it for what it's worth.

Hi, Et tu !

2008 Jul 18 12:42 PM

[Dream On:]

On a side note, Seeking Alpha seems to be the only place I am reading the 'eBay is doing super' claptrap without at least mentioning the furor and outcry from the eBay community. It isn't that they don't know we exist, this is the 3rd such article I've chimed in on here, it seems to be that they refuse to acknowledge us. 'If we pretend you aren't there, maybe you aren't' or some such nonsense.

I wonder to myself if they are either
a. Tied to eBay in some way.
or
b. Know this is a volatile subject and will bring in the clicks and comments.

2008 Jul 18 12:54 PM

[Tony P.:]

Sramana,

I've read many of your write-ups and know that you have a thorough understanding of ebay, in a 'corporate structure' manner. In your exhaustive analysis of ebay, from last year, you wrote this:

"The overall look and feel of the site has been very “dirty”, and it is amazing that a company as old as eBay never addressed that. Recently they are testing more web 2.0-esque interface tools."

I'd like to suggest something to you and simply want you to consider it. Suppose - just suppose - that the ebay users that tend toward the auction platform prefer an "old style" interface. Think of them as the people that prefer a Keep It Simple Sam philosophy of life.

What effect would a fancy-shmancy GUI have upon that sort of person? You know, an interface full of neato pop-ups-and-clicks, multiple levels of "option" click-boxes and loads of 'intuitive' (read yer mind) functions.

Do you think that might put-off such a person? Do you think that an environment like that might curtail that person's use of a web site that constantly implements the newest gizmo, simply because it's the latest fad?


Sramana, in that same analysis you did, you noted that the auction format seemed to experience a slowdown in 2005. I propose that is a direct result of what ebay did in 2H04; not - repeat NOT - as a result of a 'maturing of the auction market'.

In the summer of 2004, ebay made a change to the layout of several major categories. They rolled-up the individual categories and instituted the search function called Item Specifics (IS). This was the first time such a drastic change had taken place on the ebay site.

They continued throughout the remainder of 2004 eliminating the individual categories, thereby forcing the use of IS as the only means of searching those categories. Ebay stated that "bidders don't like to browse".

Which meant, users would need to know precisely what they wanted, and use those very precise terms to do an IS search. I'm sure you can see where I'm going with this. And, this has little to do with commodity-type, fixed price or ebay store items.

It has everything to do with auctions and what many of us believe to be true about how the ebay auction market came to be depressed. First, its patrons were left confused and then they left, confused.

The slow death spiral of auctions may have began through acts of ignorance and expediency, but now it is a deliberate effort as the Donahoe drive towards a more Amazon-like market is forced upon the site.

Auctions aren't dead, nor have they matured into a blasé state, they simply are unwanted orphans at the moment. This is ebay management at its best (think Skype purchase mentality) and IT continues.

2008 Jul 18 01:59 PM

[Et tu, Brute!:]

A thought:

Posted earlier I stated that the sellers were dumping their stock.

Too bad we can't reverse that. When the stock drops low enough, we buy, buy, buy up the stock. If all sellers commit to this, could the eBay corporation be re-taken?

Just a thought. But... spread the word across the boards? Maybe?
Stock is getting low enough it just could be feasible!

Hi, Watching!!!

2008 Jul 18 02:36 PM

[exodusfromebay:]

Touting the party line, eh? Whatever happened to journalistic integrity?

2008 Jul 18 03:07 PM

[Watching th...:]

Et tu, like your stock plan. It's creative and it seems to me that if you could coordinate an effort you could acquire a large enough chunk to at least have a substantial influence. get on the boards in other countries. I'm sure the Aussies would be game, probably the French also. I used to bounce around and visit other Ebays.

Just have to be logged in and you can chat with whomever you'd like. There is also some sort of translating gizmo that can be attached while conversing.

The French companies have some found money.

I say run with it! It's a fitting idea.

I've always been a firm beliverin there being more than one way to skin a cat.

Power Sellers Unite could be useful. I would suggest trying to form some sort of legal entity to protect the project.

2008 Jul 18 09:25 PM