Peck swings for the fences…

January 17, 2008

Marketplaces ChannelAdvisor By ChannelAdvisor

We have a perfect storm happening from a financial perspective with eBay this week:

  • eBay is set to report Q4 next week Wed.
  • As mentioned, we are hearing they will announce fee changes concurrently
  • Wall St. is looking for them to introduce 08 guidance (all eyes will be on margins as the co has been messaging lower margins+headwinds)
  • The big ecommerce forum is around the corner
  • Everyone knows they are working on fixing finding
  • eBay’s stock hit a 52-wk low yesterday when it closed at $28 – it hasn’t been this low since early/mid Sept 06 where it saw a low point around $22.  To get lower, you have to go back to early 03.  (Hey it could be worse, the folks at Yahoo! hit a 4yr low recently – I kid you not.)

In front of this perfect storm some of the sell-side analysts on Wall St. could change their viewpoints on the stock+company.  Today Bob Peck@ Bear Sterns put out a report that essentially says the fears (Amazon, fees, finding, etc.) are overdone and that at this price the time is right to get into the stock.  He put a ‘Outperform’ rating on the stock and a $36 price bogey.  It’s a great read if you have time and I believe you can find it here without having a pwd.

Bob’s basic thesis is that 60% of eBay’s business is not at risk because the fixed-price format only makes up 40% of eBay’s business.  Thus Amazon will probably never chip away at that 60% ‘core auction’ business.  There are also some good points on execution of finding/fraud/fees, etc.

I agree that it’s definitely positive that eBay is addressing these things.  I do think Bob maybe sweeping under the rug some of the execution risks that eBay faces as it fixes the core marketplace.  That’s going to be a big wait and see for everyone.  I’m not doubting the IQ points of people at eBay – they have smart people on these things.  But when you really dig into these challenges, they are not trivial and in many times I feel will take 2-4 iterations (in software 3 is usually the magic number) to nail.

On the Amazon side, sure 60% of eBay is kind of ‘protected’, but I’d say that in reality when you look at sellers the fixed-price/auction mix is really more 40% ‘real multi-bid auction’, 60% ‘should be fixed-price’. What happens is many sellers use the auction format to sell something with a high starting bid, they get one bid and sell the item. This counts in the eBay financials as an auction item, but for all intensive purposes in my mind that was a fixed-price transaction with some hope for upside.  That transaction can be just as happy/lucritive on Amazon as eBay.

Also remember that eBay gets a LOT of its revenue from listings and there are significantly more fixed-price (bin/fp-core/store) listings than auction listings – so they have about a 60% GMV exposure, but an even higher REVENUE exposure to the Amazon threat.   This argument assumes that the fee structure changes aren’t so substantial as to change the entire site’s fees, but more category targeted.  eBay could mitigate the revenue risk with a more macro fee change.

These datapoints plus watching the behaviour of a large audience of eBay’s top sellers which make up a big chunk of GMV and I net out that Bob is under-selling the Amazon threat here.  I suspect we’ll get some really interesting data on this when we see eBay vs. Amazon’s Q4 results side-by-side.

eBay strategies readers what do you think?  Are the execution/amazon/recession fears overdone as Bob says or