eBay Worsening

Previous quarters’ doubts about eBay’s Q4 performance weren’t unfounded, as was evident in the company’s results announcement yesterday. eBay’s CEO, John Donahoe, called himself “frustrated” with the previous year’s user experience and search improvement initiatives failing to translate to much higher revenue and GMV growth.

Q4 revenues of $2.04 billion were lower than the market’s expectations of $2.1 billion and were down 7% over the previous year. EPS of $0.41 also slipped by 9% from the previous year, though it managed to beat the Street’s expectations of $0.39. EPS recorded its first ever year-over-year decline.

They closed the year with $8.5 billion revenues, recording growth of 11% and EPS of $1.71 grew by 12% over the year.

By segment, Marketplace transactions were down 16% over the year and contributed $1.3 billion in revenue. Active users grew by 5% on a trailing twelve-month basis. Classifieds grew 48% and text and graphical advertising were up 47%, but Shopping.com declined 50%.

PayPal posted revenues of $623 million and grew by 11%. Total payment volume was $16 billion, an increase of 14%. Global active PayPal accounts grew by 23% to 70 million.

Skype revenue grew by 26% to $145 million in the quarter. Skype-to-Skype minutes grew by 72% to over 20 billion.  

Going forward, eBay expects to generate revenues of $1.8-$2.05 billion with EPS of $0.32-$0.34.

During the year, the company made quite a few significant acquisitions. They acquired Fraud Sciences, which should improve PayPal’s risk management capabilities; Bill Me Later to extend their leadership position in payments, but mainly to thwart Amaon; and DBA and BilBasen to broaden their global leadership in online classifieds.

After taking over from Meg Whitman, John Donahoe listed three clear priorities for the company. First, make eBay safer and easier to use. Second, improve value and selection by combining fixed-price sales with auctions in a uniquely eBay way. Third, extend PayPal’s leadership position both on and off eBay.

During the year, Donahoe’s game plan had varied results. Though eBay has made significant improvements in their user interface and migrated to a more balanced auction and fixed-price model, their user base is not growing substantially. Today, Amazon is a preferred e-tailing site over eBay. ComScore’s metrics also reported traffic to Amazon in December 2008 as rising by 9.8% over the year compared with eBay’s 2.5% drop in traffic.

The company also doesn’t seem to be doing much with Skype, despite Donahoe’s admission that Skype is not likely to have many synergies with their other portfolio and that eBay is treating it as a standalone business. Why not sell it to someone who may not treat it as standalone and get some real value out of it, and be willing to pay commensurate cash in exchange for the opportunity? Yes, I am talking about Microsoft and Google.

The stock continued its drop and has fallen to a record low of $13.28. I have seen nothing yet to say with any confidence that eBay is going any place that I want to go with them from an investment point of view.