Web 3.0 & eBay (Part 5)

Conclusion

We have had a look at eBay’s business and verticals and discussed them from a Web 3.0 perspective over the last few days. eBay has been experiencing a slow down in its growth rate. Skype is struggling and the Company is working on better monetizing Skype. PayPal on the other hand has been doing very well and is a key driver of revenues. Pay Pal revenues have increased 34% YOY for the nine months ended September 2007.

The period between Thanksgiving and New Year is normally very strong for eBay and this year is no different. According to comScore, eCommerce traffic has been good for Thanksgiving (up 29% YOY), Black Friday (up 22% YOY) and Cyber Monday (up 21% YOY) and it expects this momentum to continue for the rest of the festival season.

Gross Merchandise Volume (GMV) at eBay has been growing at 10% below the market. The GMVs have improved to 12-15% during the Thanksgiving week but is still below the broader industry. However, conversion at eBay has improved YOY, but this could be because sellers are not listing as much due to the high listing fees. eBay’s free gallery promotion hasn’t been that successful, and slowdown in listings is a core issue that the company is trying to get its arms around.

Traditionally, eBay has been strong in autos, collectibles, consumer electronic, books, cell phones, lifestyle shopping (apparel, jewelry, shoes, watches, etc.), music, movies, DVDs/CDs, toys & hobbies and sporting goods & sports realted products. Shopping verticals, gaming, computers and electronics are doing well. Cell Phones, Real Estate, Video Games,
and Jewelry showed particular strength on a YOY basis. Books, Crafts, Tickets and Baby were strong QOQ. eBay Motors Listings Up 12.6% YOY, Up 3.2% QOQ. Art, Antiques, Home & Garden, Music, Pottery & Glass, have experienced slowdown both YOY and QOQ.

Comparison-shopping is the fastest growing category. Traffic on Shopping.com, an eBay property, had increased 28% year over year on Cyber Monday, and PayPal showed a 33% year over year increase in online payment volume on Black Friday. Moreover, traffic to eBay merchants for Thanksgiving weekend was up 30% year over year.

Another headache for eBay is Google Checkout. Its ability to tie into Google AdWords is drawing a large number of merchants from PayPal to Google Checkout. Checkout increases click-through rates by 10% via this AdWords integration. Though Google Checkout has been a non-starter with the individual consumers (eBay’s C2C business), it seems to offer more value to the merchants and is sure going to be a matter of longer term concern for eBay. Merchants would not abandon PayPal or eBay, since both are important channels for them, and CheckOut is banned on eBay. However, Google sure starts to appear on their radar as an alternate e-commerce channel, and that’s a huge threat for eBay.

Then, there is also the threat from Amazon’s marketplace product which offers merchants yet another compelling alternative. Amazon brings to the table superior knowledge of customer preferences via its personalization and recommendation systems, and thus, can conceivably offer better conversion rates to Sellers.

eBay expects consolidated net revenues for Q4-07 to be in the range of $2.10 billion to $2.15 billion. Non-GAAP earnings per diluted share for Q4-07 are expected to be in the range of $0.39 to $0.41. These amounts assume a US dollar to Euro exchange rate of $1.38. For the full year 2007, eBay expects consolidated net revenues to be in the range of $7.60 billion to $7.65 billion. Non-GAAP operating margin for 2007 is expected to be approximately 33%. Non-GAAP earnings per diluted share for 2007 are expected to be in the range of $1.47 to $1.49.

The strong eCommerce sales during the Thanksgiving week have cleared the cloud over the much feared mortgage meltdown and slowing US economy. The latest comScore data clearly shows that consumers are buying online. Some have been building a case of offline sales moving online, which will benefit eBay. eBay for its part has improved its auction platform for consumers, added personalization (eBay My World), community features, eBay Express, Deal Finder, eBay Widgets and included new verticals and features. eBay makes over 50% of its sales outside the US and this will enable it to take advantage of the falling dollar against the global currencies.

The Company should look at acquiring shopping comparison sites and vertical search engines to drive traffic and acquire consumers. The point is, eBay should analyze carefully its Comparison Shopping / Vertical Search ad-spend, and figure out which ones account for most of their success in customer/transaction acquisition, and then buy those if they are independent. By no means should eBay allow Google to consolidate the vertical search category, which would increase eBay’s dependence on Google, which is already alarmingly high.

The additional issue is User Experience, which some of the Vertical Search engines I discussed in this series would greatly enhance, another area where eBay has been quite weak.

My parting comments on eBay is that it is perhaps time for ebay to change CEO. Meg Whitman has done a fantastic job as long as the business model was well understood, competition was non-existent, and the challenge was pure execution. In other words, Whitman is a superb operational CEO. She really is not very creative on the strategic front, and has not been able to steer eBay in an era when the core auctions business slowed down, and the playing field has become, simply, more complex.

Today, eBay needs a thorough strategic overhaul, and it is not at all clear to me that the company has a leadership team that is capable of delivering it. Thus, I would not be surprised if the stock continues to languish, which is areal pity, because just like Yahoo, eBay is a company that still has infinite potential in front of it.

Infinite untapped potential, that is!

[Part 1] [Part 2] [Part 3] [Part 4]

This segment is part 5 in the series : Web 3.0 & eBay
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