If you are considering becoming a 1M/1M premium member and would like to join our mailing list to receive ongoing information, please sign up here.

Subscribe to our Feed

eBay Rides On PayPal’s Strength

Posted on Tuesday, Jan 26th 2010

In the face of the economic downturn, e-commerce seems to be holding its ground. Initial reports indicate modest, mid-teens growth in 2009 over 2008. Consumer e-commerce spending for the Christmas holiday and post-holiday season through early January 2010 was roughly $25.5 billion, an almost 4% increase over 2008. Cyber Monday, November 30, boasted sales of $887 million. The U.S. Census Bureau of the Department of Commerce estimates that U.S. retail e-commerce sales for the third quarter of 2009 totaled $32.0 billion, an increase of 3.9% from the second quarter of 2009. Major e-commerce companies like eBay, Amazon and stand to benefit from the growth in the overall e-commerce market.

eBay Inc. (NASDAQ:EBAY) reported financial results for the fourth quarter and full year ended December 31, 2009, on January 20. The company posted Q409 revenue of $2.4 billion, up 16% over Q408. Non-GAAP operating margin decreased to 29.3% in Q409, compared to 32.8% in Q408. The decrease in non-GAAP operating margin was caused in part by recent acquisitions and the company’s continuing shift in the mix of its businesses, and was in part offset by productivity gains. eBay recorded non-GAAP net income of $585.8 million or $0.44 per share in Q409, up 9% over Q408.

The Y-o-Y increase was due primarily to excellent growth in PayPal and StubHub and improvement in growth rates in the core eBay business, as well as the positive impact of foreign currency movements. PayPal significantly expanded its global presence and, for the first time, processed more than $20 billion in total payment volume in a quarter. Gross merchandise volume and sold items accelerated for the third consecutive quarter.

The Payments business unit reported $795.6 million in revenues in Q409, an increase of 28% Y-o-Y. Net total payment volume (TPV) for the quarter was $21.4 billion, an increase of 34% Y-o-Y. The growth in revenue and TPV was driven primarily by continued momentum in PayPal’s Merchant Services business and growth on the eBay platform. PayPal continued to increase its penetration on eBay (65.9% at the end of Q409) and across other e-commerce platforms. Geographically, TPV growth was 22% in the United States and 54% internationally. PayPal transaction margin was strong, improving to 62.1% in Q409. PayPal segment margin was 17.8% in Q409, up 300 basis points from Q309 and down 100 basis points Y-o-Y.

PayPal now supports 24 currencies in 190 markets with 81 million active accounts. PayPal’s Merchant Services grew robustly in Q409 with the number of payment transactions growing 53% Y-o-Y. Merchant Services accounted for 57% of total TPV in Q409 compared to 50% in Q408. In the United States, PayPal Merchant Services TPV grew at 10 times the market growth rate for e-commerce. International Merchant Services grew 80% Y-o-Y and volume from outside the United States accounted for 40% of PayPal’s total TPV. Cross-border trade now accounts for almost 25% of PayPal’s TPV.

PayPal became the first major payments platform to open up to third-party developers, a move which should accelerate PayPal adoption and innovation. The Payments business plans to remain focused on continuing consumer and merchant adoption on and off eBay, expansion of PayPal’s open platform initiative and ongoing integration of Bill Me Later onto eBay. PayPal seems to have leapfrogged Amazon Payments and Google Checkout in the payments business, and they are playing a game of catch-up. PayPal’s strategy of Flexible API is a direct take on Amazon Payments Flexible Payment System and has generated rich dividends for PayPal. In response, Amazon is making cash-back offers and other discounts similar to PayPal’s.

e Bay’s Marketplaces business unit, which consists of eBay,, StubHub, Kijiji, and other e-commerce sites, recorded $1.5 billion in revenues in Q409, a 15% Y-o-Y increase. Marketplaces’ net transaction revenue increased 17% Y-o-Y. The Marketplaces business unit benefited from strong growth in its fixed-price format, the continuing success of its highest rated sellers, and double-digit organic growth in sold items. Marketplaces segment margin was 40.4% in Q409, down 480 basis points Y-o-Y.

In Q409, same-store sales for top-rated sellers in the United States grew over 10% and accounted for approximately 30% of total core GMV. In Germany, top-rated sellers grew same-store sales by 25%, and in the UK by 35%. Sold items accelerated for the third consecutive quarter, up 11% globally Y-o-Y.

Marketplaces continued to benefit from growth in its international business, which accounted for approximately 60% of Marketplaces revenues in Q409, up from 55% Y-o-Y. Gross merchandise volume (GMV) (excluding vehicles) was $14.2 billion in Q409, an increase of 24% compared to Q408. Asia Pacific remains the fastest-growing region with GMV growth of almost 50% Y-o-Y.

StubHub had a particularly strong Q409, with ticket sales up 54% Y-o-Y, driven primarily by high-profile concerts and sporting events leading to strong demand and market share gains. The classifieds business was up 20% in 2009. Total global advertising revenue increased by 3%. Ad revenue was negatively impacted by the placement of advertising on the eBay site., and other revenue was up 7% Y-o-Y. The Marketplaces business plans to continue to focus on trust, value, and selection in its core business to drive GMV growth, and on format expansion.

eBay is making progress on the mobile front as well. eBay’s mobile application has been downloaded almost 7 million times, making it one of the top apps on the iPhone. Consumers using eBay’s mobile application generated over $600 million in GMV on eBay during 2009, a more than 200% increase over 2008, indicating a rapid shift in customer acceptance of its mobile application. PayPal Mobile is also seeing downloads on the iPhone and Android.

On November 19, 2009, eBay completed the sale of the majority of Skype to an investor group led by Silver Lake and includes Joltid Limited and certain affiliated parties, the Canada Pension Plan Investment Board and venture firm Andreessen Horowitz. The company received cash proceeds of approximately $1.9 billion and a note in the principal amount of $125 million and retained an approximately 30% equity interest in Skype.

eBay estimates Q110 net revenues in the range of $2.1 billion to $2.2 billion, representing growth of 12% to 18%, excluding the 2009 impact of Skype. The company estimates non-GAAP EPS in the range of $0.39 to $0.41, representing growth of 8% to 13% excluding the 2009 impact of Skype.

eBay may have beaten the forecast, but there are still issues with its core Marketplace business, which is facing intense competition and experienced deterioration in auctions and vehicles. The performance of the marketplace over the next few quarters will give us a fair idea as to whether it is gaining market share or losing to the competition. For now, with the sale of Skype completed, management will be able to focus on its core business. Although the stock went up on the initial euphoria over the results, eBay will have to do much more to move it consistently upwards, especially with Amazon’s growing intrusion into eBay’s territory.


Hacker News
() Comments

Featured Videos