What Will Be the Impact of eBay's Rate Changes?

| About: eBay Inc. (EBAY)

Moving toward traditional retail

As anticipated, eBay (NASDAQ:EBAY) announced a new fixed priced listing format with significantly lower upfront fees ($0.35 for a month listing) that is better suited for retailers looking to use eBay as a channel for new goods, plus other changes to payments and shipping requirements. In the US the new format will be in addition to the auction and stores format and will replace auction/buy-in-now hybrid. We think these change reflect a more discerning eCommerce consumer, weak auction format GMV growth (just 2% in 2Q) and opportunity to increase PayPal adoption.

Take-rate (revenue) impact likely negative, PayPal offsets

The take rate impact will depend upon product category, ASP, and conversion rate. In many cases, however, the take-rate is lower for items using the new format, and since sellers will choose other formats when the new format is more expensive, we believe overall take-rates will be lower. This will be offset by greater PayPal penetration. We estimate a negative $125-150mn impact on ’09 revenues assuming about 30% of items move to new format and 10% lower avg. take rates, which should be offset by a $100-150mn PayPal penetration boost.

Marginal impact on buyer experience, maintain Neutral

While an increase in listings in September following fee decrease could be a catalyst, the new listing format alone is unlikely to significantly alter the buying experience, in our view, as inventory availability is not the core issue for eBay. Search improvements remain a wild card, and more uniform shipping fees and fraud prevention should help, but we believe the buying experience will still fall short of other fixed price retailers. At 13x 2009E EPS, we think stock will remain range bound into 2009 guidance (expected in January), which could be below street if changes don’t stabilize GMV growth, in our view.

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