Web 3.0 & eBay (Part 1)

Introduction

Founded in 1995, eBay Inc. provides consumers with Internet platforms for global commerce, payments and communications. Since its inception, eBay Inc. has expanded to include some of the strongest brands in the world, including the eBay e-commerce marketplace, PayPal, Skype, Shopping.com, and others.

Today, eBay has three operating segments: Marketplaces, Payments and Communications. The Marketplaces segment enables online commerce through a variety of different platforms, including the traditional eBay auction-style site, classifieds websites, comparison-shopping site Shopping.com, secondary tickets platform StubHub, and real estate site Rent.com.

The Payments segment consists of PayPal, which enables individuals and businesses to securely, easily and quickly send and receive payments online. The Communications segment consists of Skype, which enables VoIP communications between users across the world, and provides low-cost connectivity to traditional fixed-line and mobile telephones.

eBay has a global presence in 38 markets including the U.S. eBay has approximately 248 million registered users worldwide. eBay users worldwide trade more than $1,812 worth of goods on the site every second. At any given time, there are approximately 102 million listings worldwide, and approximately 6 million listings are added per day. eBay users trade in more than 50,000 categories.

eBay has made three acquisitions in 2007. On February 13, 2007, it acquired StubHub, a secondary tickets platform (that facilitates the resale of event tickets) for $292.4 million. In May 2007, the Company acquired a minority stake in GittiGidiyor, a Turkish online marketplace similar to eBay that offers auctions, stores and fixed price listings. It also acquired StumbleUpon, a web browser plugin that allows its users to discover and rate webpages, photos, videos, and news articles for approximately $75 million.

Net revenues for the three months ended September 30, 2007 were $1.9 billion, representing a growth rate of 30% YOY. Operating loss in 3Q07 was $937.7 million. Net loss in 3Q07 was $935.6 million, or $0.69 loss per diluted share. Both the operating loss and net loss for the quarter were driven by a goodwill impairment charge of
$1.4 billion at the Communications segment. In other words, the Skype acquisition was a bust, as I and others predicted a long time back.

Marketplaces net revenues totaled a record $1.32 billion in 3Q07, representing a YOY growth rate of 26%. eBay’s users posted a total of 556 million listings in 3Q07 representing a YOY decrease of 5%. These listings generated Gross Merchandise Volume (GMV) of $14.40 billion in 3Q07, representing a YOY increase of 14%. GAAP operating cash flows increased to $629 million in 3Q07. Free cash flow increased to $510 million in 3Q07. The listings decrease is a matter of HUGE concern for the company, and one that is definitely depressing the stock price.

PayPal net revenues totaled a record $470 million in 3Q07, representing a YOY growth rate of 35%. Global TPV was $12.22 billion in 3Q07, representing a YOY increase of 34%. PayPal Merchant Services contributed $5.38 billion globally to the $12.22 billion in global TPV in Q3-07, representing a YOY increase of 61%. PayPal is eBay’s strongest growth business, today.

Skype net revenues totaled a record $98 million in 3Q07, representing a YOY growth rate of 96%. Skype had 246 million registered user accounts at the end of 3Q07, representing a YOY increase of 81%. Skype, in short, is entirely non-synergistic with the eBay portfolio. I think, eBayshould sell it off to Google, perhaps, who has a lot of cash to spare, and in Google’s portfolio, Skype will experience a much better sense of belonging.

The Company plans to make more investments in the areas of product development, customer support, marketing and international expansion across all segments, which it believes will drive transaction revenues by growing both GMV and Non-GMV revenues, increase total payment volume, Skype user activity and advertising revenues in the coming quarter.

We will take a look at eBay’s Internet properties in the following posts, with a particular focus on the vertical strategy. As the web gets more and ore verticalized over the next decade, how would horizontal marketplaces cope with this trend? There is also the affiliated question about the advertising potential on eBay’s enormous userbase that we will consider.

(To Be Continued)

This segment is part 1 in the series : Web 3.0 & eBay
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