eBay 2008 Q3 earnings call: A tough economic environment
October 15, 2008
“This tougher economic environment” was a phrase repeated over and over again in the eBay Q3 2008 investor conference call.
JD started off upbeat, reporting year on year growth for all the eBay businesses, but the truth is growth has slowed, partially due to the world economy. eBay’s revenue was reported to be up 12% on this time last year, but it’s only growing at 9% instead of the 23% of a year ago.
Talking about feedback JD stated eBay have seen a clear move by buyers to purchase from sellers with the highest DSRs at the expense of sellers with lower feedback scores. In the US some of the highest rated sellers saw sales grow by as much as 26% in a year. The not so good news is that buyers are not spending more on eBay overall - that means keeping feedback DSRs high is essential for winning sales over your competitors.
eBay’s growth is coming from PayPal, Advertising, Classifieds and Skype. The eBay marketplaces is about the only business that isn’t reporting strong growth and PayPal for the first time saw more revenue from off eBay merchants than they did from eBay related payments.
“Modestly higher” fraud losses were attributed to expanded PayPal protections. Although that’s not great news for investors it is for buyers and sellers - that’s the loss we used to stand!
Finally near the end of the call came an interesting question from Imran Khan of JP Morgan - when will conversion rates rise again - which showed a lack of understanding of how the recent fee changes have affected the marketplace. With insertion fees low (and for some free, or close to free), it’s not surprising that listings are up substantially but it’s unrealistic to see a similar increase in sales.
Conversion rates will never climb to the level they were at prior to the September fee changes, a better measure of success for the future is sold items (growing a modest 6%). More importantly they won’t increase until buyers start spending more on eBay. eBay’s focus is now buyer retention which is why eBay are directing them, via Best Match, to sellers with the best feedback for (hopefully) a better, safer buying experience.
eBay already have all the buyers, now they just need to figure out how to keep them and keep them spending.
eBay adjusted earnings guidance down slightly due to the stronger US dollar (53% of revenue is now from outside the US), acquisition costs (Bill Me Later, dBA and BilBasen) and a tougher economic environment.
Q1 earnings call: has eBay turned the corner
April 16, 2008
The upshot of the call was that the changes implemented by the new management team are starting to make a positive difference. Listings are up with conversions holding at acceptable levels, overall revenue for eBay is up 24% with PayPal revenue up 32%.
The figures aren’t as interesting as the tone of the call, the message coming across is that “We’ve turned the corner and the future is looking bright”. JD went to great lengths to distance current management from the past (Are investors pleased that Meg is no longer at the reins?) and that the current management have their fingers firmly on the pulse. Examples were given (e.g. category specific pricing for media sellers) of how they are listening and taking action where necessary.
Possibly the most important part of the entire conference call was right at the beginning when JD said eBay “need to grow revenue from existing customers”. Is this an admission that eBay are finding it hard (or will in the future) to grow active users? Certainly in the UK 14 million active users out of total UK population of around 60 million will be hard to grow much further.
Bob Swan, eBay CFO, came to the obvious conclusion that the best way to grow the active user base is not to lose existing buyers. That isn’t something eBay have majored on in the past but activity in the future will focus more heavily on retention. It’s hard to grow your user base if you lose buyers faster than you gain new customers.
Overall the message is quite simple, buyers are the most important commodity that eBay have and they’re going to look after them better than ever before.
Rising DSRs boost eBay share price
April 7, 2008
On Thursday last week Merrill Lynch issued an upgrade from neutral to buy on eBay stocks which has already lead to a bump in eBay’s stock price. What interested me more though was the reasons for the change of heart.
Merrill Lynch spoke to eBay users and concluded that some sellers are migrating from auctions to fixed price listings, tweaking postage prices to up DSR scores and generally being more responsive to buyers.
Also a comment by Stephanie Tilenius at last week’s Catalyst conference, that eBay had seen a 20-30 basis points improvement to DSRs since seller incentives were introduced (a basis point is a 1/100th) lends further credence to Merrill Lynch’s upgrade. It suggests that sellers are working to improve the service they give and that’s what eBay were aiming for.
Whilst these changes may appear small (I can’t remember ever getting excited about a 0.2 - 0.3 improvement in the past!), they’re significant enough to push the share price to its highest peak so far this year.
There is a change of direction coming from eBay since the management changes. The old management team were firmly focused on auctions whilst JD appears to be embracing fixed price listings. Seller performance being tied to seller incentives looks to be improving generally great customer service on eBay to even higher levels.
If these steps result in eBay’s share price increasing it’s a winning situation for buyers, sellers, investors and eBay themselves. The big question is what other changes will please investors and are their interests aligned with those of buyers and sellers?
Is eBay up for sale?
January 10, 2008
Scot Wingo over on eBay Strategies says Microsoft and Yahoo! are bidding to buy eBay, with Yahoo! the expected winner.
Could eBay be sold and how would that change the auction business landscape? Would it be a good thing? Only time will tell, but sellers should be prepared for change in 2008. Whether the change comes from normal site changes which sellers have learnt to take in their stride or from a buy out, change is the one certainty of trading on eBay.
eBay expect average selling prices to drop
October 18, 2007
Last night eBay held their quarterly conference call where they give investors a forecast of future business and the opportunity to ask questions on the state of the eBay business. It was no surprise that profits took a hit from writing off $900m from Skype a few weeks back. To balance that the StubHub business eBay acquired at the begining of the year is booming.
As ever PayPal is the engine behind eBay’s financial success in recent years with revenues up 35% on this time last year. PayPal is the most astute investment eBay have ever made both to enable transactions on eBay and as a burgeoning off eBay business.
What is surprising is that for the last two conference calls there has been no mention of eBay Express! Meg Whitman last mentioned it in January stating “eBay Express continues to experience increased adoption and growing success”. That growing success now appears either to have stalled or simply not worth mentioning. It’s certainly not the focus for investors as a vibrant part of the eBay business portfolio.
What may not please sellers on eBay.com is an expected drop in average selling prices over the next few weeks, however welcome that may be to buyers. Talking about the three week 33% reduction in selling fees Meg said “we expect listings to increase; we except successful items to increase; we anticipate perhaps ASPs will go down”.
It’s an interesting experiment and one that eBay have never tried before, will a significant decrease in listing fees trigger an increase in listings to balance eBay’s finances? Will sellers list in greater volumes and will that drive down prices, but in turn if that increase sell through rates could sellers overall profits increase even if at lower margin per sale? Will it cause a significant shift from Shop Inventory Format to auction and BIN listing formats? eBay themselves are unsure of the impact but “were very much in favor of saying let’s see what happens when we take a pretty significant sustained decrease in insertion fee in our largest market.”
There’s may be something for UK sellers to look forward to. Meg did say “You’ll also see many of our markets around the world launch similar tests this quarter” so massive price decreases just might appear in the UK before Christmas 
eBay writes $900m off Skype
October 2, 2007
eBay have admitted they paid too much for Skype, writing down the value of their investment by $900million. They will also make payments of $530million to former Skype shareholders, far short of the $1.7billion which could have been paid out if Skype had hit performance targets. The loss totalling $1.43billion will be included in eBay’s third quarter figures. Last quarter, Skype contributed just 5% of eBay’s revenues, $90million.
Skype founders Niklas Zennstrom and Janus Friis will quit as executives, with Zennstrom becoming non-executive chairman. After selling Skype to eBay, the two set up online video company Joost, which made its software freely available on Monday.
The news was obviously a relief to the markets, as eBay’s share price hit an 18 month high. But how will this affect eBay’s users? When eBay bought Skype back in 2005, the promise was that VoIP telephony would revolutionise communication between buyers and sellers. That hasn’t happened: it’s only in the last few months that “Skype me” buttons have been permitted on eBay listings and that eBay notifications for bidders could be received on Skype. It’s almost as if eBay’s senior managament don’t trust eBayers to talk to each other in case they cut eBay themselves out of the deals. They really need to embrace the technology they spent so much on, or the rest of their $2.6billion investment will be wasted too.
SIF in Core debacle still troubles eBay
July 18, 2007
The message from eBay Q2 2007 Investment Conference Call is that numbers up great, business is up (at least closing rates for sellers are, listings are down but that’s ok). We’ve got cash in the bank, we’re generating cash, everything is great. Top management is stronger than it’s ever been and they know what direction they’re driving the eBay businesses in for the future. The titbit hidden away that made me smile was “Geographic Tax Savings”, I guess that’s “Thank you Luxembourg (and an encore)”.
So what does that mean for sellers? For that we need to look beyond the numbers to what’s driving them.
SIF in Core
Firstly Meg admitted that they totally underestimated the effect of putting SIF listings into Core, and even more so they failed to forecast the full effects of taking them back out. This has caused a ripple effect and fully a year later the marketplace is still feeling the shockwaves of these changes from the first half of 2006. Sellers are still evaluating how best to sell, should it be auction or fixed price, ebay or alternative platforms. Sellers are starting to see higher conversion rates and this should continue. It also made eBay sit up and realise that the user experience could be improved, but more on that later.
So the figures behind higher conversion rates, new listings are down 6% on last year, (SIF listings are down 25%) but GMV (Gross merchandise volume) is up 10% in the US and 14% Internationally. Average selling prices are up and more listings are closing with bids, that’s good news for sellers. Or at least it will be once they work out the balance of auction/BIN/SIF to use. Although conversion rates may be up that doesn’t mean sellers have figured out what’s working and what’s not working and Meg pointed out that the SIF in Core cleanup is still ongoing.
Advertising
eBay have experimented with different advertising formats and they’re working. This includes both Classified Listing Format on eBay and products such as Kijiji and Gumtree. Shopping.com is now the leading comparison site in the UK, US and Australia and partnerships with Yahoo and Google are progressing well. Expect to see Classified Format become available in more categories and on more eBay country sites in the future.
User Experience
Social Commerce is the new catch phrase. Windorphins caused a buzz in the blogoshere and Stumbleupon was acquired this quarter. eBay want to improve the user experience and Meg mentioned: Finding 2.0 with best match to get to the items you want faster and more easily. Making auctions more fun - Bid Assistant (buyers were scared to bid on multiple items in case they won more than one), visual countdown timers showing buyers how long remained to get their bids in with eBay count down, feedback 2.0 to increase buyer confidence, a new eBay home page coming soon, increased customer support for both buyers and sellers.
eBay are testing a number of innovations and rolling them out such as Blogs, My World, eBay To Go, we should expect to see more in the future.
Live Feature Testing
Great news is that eBay have developed the ability to test new features with a limited but random number of users. That’s happening with Motors 2.0 in the US at the moment. Gone are the days when a change was rolled out site wide and then tweaked, now the ripple effect of changes can be monitored prior to full implementation and tweaks made before impacting the entire business.
Addressing the slow down in Germany and the US
I don’t recall eBay being quite so open about the fact that both the US and German markets have stagnated in recent years. I’m guessing it’s because they’re starting to gain momentum again. Meg was in Germany last month and said they’ve diagnosed the cause of the slow down and have a great plan in place to move forward. Conversion rates have started to rise and tweaks that have proved successful will be implemented in the US.
Well that’s great, but what does it mean for us in the UK? Well eBay will be monitoring the market closely and with the experience gained from the US and Germany will be able to implement changes in UK and rest of Europe before the markets slow.
That spat with Google
Finally a mention… so what happened when eBay ran a “routine test” to withdraw advertising spend on Google and redeploy the funds on other sites such as Yahoo, MSN and ASK? Well it had no effect on the quarters performance and they gained valuable insights into redeploying spend on other sites. eBay are spending on Google again but will be spreading their advertising thinner in future both online and offline.
The Numbers
I guess I’d best mention them…GMV growth was 2%, Advertising - classifieds and SDC GMV up 77%, PayPal 32% growth, Skype growth is up in Europe and Asia but slower in the US. Overall they’re raising revenue expectations for Q3/Q4, reckon they’re doing a pretty good job, and have $3.8 billion cash in the bank.
eBay’s share price closed at $34.05 prior to the Investor Conference call and in after hours trading has dropped 65 cents.
$87450.00 windfall for Bill Cobb
June 19, 2007
On Friday whilst at eBay Live! Bill Cobb made $87450.00 in a pre-arranged purchase of eBay stock which he immediately resold. No wonder he was walking around with a huge smile the whole weekend.
In fairness as an eBay senior executive it was a trade that was arranged some time in the past, and not based on insider knowledge, but I’m guessing the windorphins kicked in regardless.
Bill is about to take a break from eBay and spend some time with his family. He told me one of his favourite pastimes is golf so he’ll be out on the greens during his time off. It’s a nice little bonus to ensure the green fees don’t hurt his pocket, but currently we don’t know when he’ll be returning to eBay after his break.
eBay Seller Rewards you for using PayPal
May 21, 2007
eBay seller rewards (now renamed “eBay Rewards“) is now complemented with a new PayPal Percentage Rule. For high spenders who have a turnover greater than £10,000 in sales per month on eBay they can gain rebates based on the percentage of eBay sales paid for via PayPal. The bigger the increase in the proportion of sales paid for with PayPal the greater the reward, which tops at at 100% (when eBay have achieved their goal of all your sales being paid for via PayPal).
This promotion is aimed squarely at encouraging the larger eBay merchants to accept PayPal, and of course coupled with eBay Rewards to pay more eBay fees. As Sue pointed out though it’s not all about simply listing more products, canny sellers will be more interested in keeping listing fees down and increasing sales and thus final value fees to gain rewards.
The one thing eBay have left to do with the PayPal Percentage Rule is introduce a bonus for staying at 100% of sales with PayPal, maybe they could consider a payment if all sales over a three month period were paid with PayPal to encourage sellers to continue using PayPal exclusively.
The introduction of eBay rewards bumped their share price a couple of notches - it’ll be interesting to see the reaction of investors and analysts to the new PayPal Percentage Rule.
eBay fourth quarter financial results better than predicted
January 24, 2007
eBay released their results with $0.31 per share earnings, well up on the $0.28 predicted by the analysts. Trading on NASDAQ closed up at $30 per share but immediately jumped after hours and are currently at $33.40
Revenue is up 29 percent at $1.72 billion with PayPal contributing $416.8 million or about 25% of income.
eBay reveal that they are looking to peripheral business for future revenue growth. PayPal is performing well with little effect from Google Checkout, Skype contributed $66 million and the StubHub purchase is designed to attract new users to the eBay group.
The conference call between eBay and investors discussing fourth quarter earnings looks to be interesting, but largely we expect a buoyant forecast for 2007 to be welcomed. Most importantly competition from both other auction sites and payment processors appear to be having little impact on eBay’s business.
Too much monkey business in a bear market
December 12, 2006
After recent bullishness about eBay’s share price, we were due a nay-sayer. Amey Stone thinks it’s time to sell:
Will the holidays be good for eBay? As a one-time eBay shopper, I’m skeptical. There remains a long-term risk to the stock that too little customer service and too much monkey-business by scammers will erode market share in the year to come.
PayPal winning over google
December 8, 2006
Cramer (of CNBC) thinks PayPal is still winning over Google Checkout, this despite Google giving the service free of transaction fees for the next year. In a change of position he recommends buying eBay stock as it’s undervalued.
Crammer also likes shopping.com yet another reason the group (who’s day to day operations were taken over in July by Josh Silverman back in July) is becoming more and more important to the eBay group as a whole. This is one area of eBay’s portfolio worth watching with business reportedly up this quarter by some 40% compared to last year.
PayPal success, shopping.com, a deal with Yahoo and Baidu.com along with some $3.2B in the bank have convinced the analysts that eBay is ending the year in fine shape and stocks are undervalued.
Buy it now
December 6, 2006
eBay have made 24/7 Wall Street’s top ten most undervalued stocks list:
According to Yahoo!Finance, the price target for EBay’s shares is as high as $45 among the 19 analysts listed by Thomson/First Call as covering the company. And, that would not even take it back to its 12-month high.
*That’s* what I want for Christmas
eBay top of the stocks
November 29, 2006
Financial bloggers Seeking Alpha have chosen eBay as number three in their all-time top ten tech stocks. They write:
eBay’s stock chart is arguably the most impressive one for the reason that unlike other Web companies of the 1994-2000 era, its genius business model was clear and investors ate it up. Unlike many companies that experienced a stock market meltdown in 2000-03, eBay’s income statement thrived, and it leveraged its balance sheet to acquire Paypal for $1.5B in one of the best Web acquisitions of all time which today contributes a growing share of its top and bottom line.
eBay is trading within a reasonable range of its all time high and considering the growth of e-commerce, its recent deal with Yahoo! and [admittedly expensive] acquisition of Skype, the company’s upside is considerable.
eBay also featured on the Top Ten Best Acquisitions list for their purchase of Paypal, and the Ten Worst Acquisitions list for Skype.
eBay Seller Rewards bolster Share Price
November 16, 2006
The launch of the Seller Rewards program on eBay.co.uk has had far reaching impact throughout the corporate world. Analyst Robert Peck notes “This is significant because eBay is “finally” trying to create incentives for its sellers to dole out more goods which is something it’s failed to adequately do so far.”
It’s great to see strategies that benefit sellers who are growing their businesses also underpinning eBay’s share price! A real ‘Win Win’ situation.
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