Clarifying eBay’s Q3 GMV

November 1, 2011

ChannelAdvisor ChannelAdvisor By ChannelAdvisor

Yesterday, I had a post where I looked at one of the big open questions from eBay’s Q3 results – how much of the increase in GMV in the US was driven by the fee change where starting in July, eBay now calculates the fee as FVF * (core+S+H).

I had a call with eBay and they helped clarify a couple of things I got wrong in that post. First eBay did not change the definition of GMV to include S+H.  This is pretty confusing, because from a seller’s point, the definition of GMV (what eBay bills you on) definitely changed, so there are effectively now two types of GMV – the GMV that eBay reports to Wall St. (no S+H) and the GMV that eBay bills sellers on (includes S+H).

This will take some getting used to and for sellers will create a difference between your GMV growth rates and those that eBay reports/sees.  Also, one metric we (and Wall St) track at is the take rate – essentially how much is eBay charging seller’s for GMV. That’s calculated by eBay’s revenue / GMV.   That’s going to be overstated now because the denominator isn’t really including everything that eBay bills on.

Real World Examples

Here’s a concrete example that helped me see how GMV has now been split into two definitions apparently:

January 2011 (before the fee change), you sell an item that is $75+$12 S+H

  • Seller’s GMV is $75
  • eBay reported GMV is $75

August 2011 (after fee change), you sell an item that is $75+$12 S+H

  • Seller’s GMV is $87
  • eBay reported GMV is $75

So in this scenario, eBay under-reports the billable GMV by $12 (the S+H) amount.

Now here’s where it gets interesting:

September 2011 – after fee change, you decide to get a BM boost and you have $87 and free ship

  • Seller’s GMV is $87
  • eBay’s reported GMV is $87

Re-evaluating the Q3 impact on the fee change (Mea Culpa)

Given this clarification on GMV, the way I measured the  impact of the fee change on Q3’s is way off.  Instead of assuming that eBay reported seller’s GMV, the correct way to look at the impact on GMV is to look at the number of items that fall into that third scenario above – because of the fee change they moved from charging shipping before the change to not charging it after.

As mentioned in the original blog post, the data on that is:

  • 2010 Q3 GMV was $4.9b in the US, ex-autos
  • 2011 Q3 GMV was $5.6b in the US, ex-autos
  • Y/Y GMV Growth was 14% or $688m
  • 2010 Q3 % of items that had free shipping was 30%
  • 2011 Q3 % items with free shipping 40%

 

So based on these facts the formula would be:

Increase in free free ship items * S+H moved into ‘eBay’s wall st. GMV’

Where the increase in free-ship items is: 2011 free ship items – 2010 free ship items

So if we assume a $75 ASP:

  • 2010 free ship items = ($4.9b/$75) * 30% = 19.6m free ship items
  • 2011 free ship items = ($5.6b/$75) *40% = 29.9 free ship items

We have 10.3m new free ship items y/y.

If we assume $12.46 for the increase (worst case scenario, certainly some sellers ate some margin in here to move to free ship).

Increase in 2011 Q3 GMV due to fee change: $12.46 * 10.3m = $128m

eBay did also say that my ASP was way high and so is S+H, which is definitely the case as @ChannelAdvisor we see a unique subset of the data, not the entire picture as we’ve stated consistently.

If you assume a $50 ASP and $10 S+H, the increase of free-ship items goes up to 15.4m and the impact increases to $154m.  An even lower ASP will make the numbers go up even further.

Bottom line

eBay’s Q3 GMV growth was  $668m.  It looks like ~$150m of that was from the fee change as GMV did not move or 22% of the increase.

Said another way, in the US, eBay’s GMV grew 14% and 3% was due to the fee change and 11% was organic.  And again that is a worse-case scenario that assumes sellers moved all of their S+H over to eBay’s wall st. GMV.

This is obviously much different from my previous calculation and I apologize if I caused anyone any inconvenience over that.

It is definitely going to be interesting going forward to see if the two definitions of GMV continue to be divergent or if seller’s go ahead and move to 100% free ship as eBay clearly wants them to do.

We’ll continue with this analysis as it has created a good bit of confusion for sellers that are experiencing an in-organic bump in their GMV and try and understand the various tradeoffs.

It’s also an interesting way to track the impact of the fee change in a very measurable way.  eBay sellers tend to react slowly to fee changes as it takes time for them to ripple through their businesses.  For example, even though this went in effect in July, the eBay bill didn’t come until August, many seller’s don’t go through that with a fine tooth comb until they do their quarterly/annual books, so I suspect we’ll see a bigger movement in Q4 because seller’s will have a Q under their belt and plus if you are going to go free-ship, Q4 is the time to do it.

Two GMV fun-facts

If you’ve stuck with me this far, then you *HAVE* to be a fellow data-geek, so I wanted to reward you with two tidbits I also learned from this Q3 GMV exercise.

In my eBay communication, I was able to clear up a couple of other things that I’ve always wondered about the GMV they report:

1. eBay’s reported GMV includes unpaid items – This is a weird artifact of eBay that we spend a ton of time explaining to other people in e-commerce.  eBay has a two phase purchase – commit and then pay.  There is a drop off in there that ranges from 0-20% for sellers.  The last time I looked it was 8-10% for our customers on average.  We don’t do a lot in automobiles, but that category has a huge UPI rate and you definitely see it higher for large ASP items and lower for lower ASP.  eBay has features for sellers to lower the UPI such as ‘immediate pay’ and the cart is 10% immediate pay so I was optimistic it would eliminate UPI all together, and then they added the ‘cart bypass button’, so we’ll have to see.

2. Understanding eBay’s mobile GMV – In two separate appearances recently, JD revealed two impressive mobile datapoints:

  • eBay’s 2011 mobile GMV will be $5b
  • PayPal’s 2011 mobile TPV (Total Payment Volume) will be $3.5b

Like the PC-web, PP is available both ‘on eBay’ (the mobile app where it is the exclusive payment option) and ‘off ebay’ where mobile sites (crutchfield is good example) and apps (shopsavvy is good example) can use PP as a payment system.

Given those facts, you would think that PP’s mobile TPV would actually be larger than eBay’s: (eBay mobile GMV + off-eBay mobile PP GMV), but that’s not the case.

Why is there a $1.5b delta?  I don’t know specifics, but the buckets have to be:

  • UPI’s – As mentioned eBay GMV INCLUDES UPIs, but TPV by definition (the P is payment) does not.
  • Autos – eBay’s $5B mobile number includes autos

My best educated guess: (which I’ve admittedly been off on lately)

  • PayPal probably has ~$500m/yr off-eBay mobile TPV – so there is really a $2b difference between eBay mobile GMV and PayPal on-eBay mobile TPV
  • If we assume a 10% UPI rate – then $500m of the eBay mobile GMV would be UPI – this kind of makes sense because even though PP is more convenient in mobile than entering a CC, it is tough to enter your ID/pwd on a mobile device and it’s always different than your eBay info so the eBay/PP double entry/ID problem (which I’ve never understood, but I digress), probably bumps up the UPI rate on mobile.  Once you lose someones attention, they are gone, or if they buy on the PC-web, it does not get counted in mobile GMV according to eBay.
  • I’d assume the rest is autos or $1.5b.  That’s pretty interesting actually – 30% of eBay’s mobile GMV is automobiles?  Last year eBay did release a mobile heat map that they have let atrophy and I remember being surprised that autos was such a big part of mobile. To put it in perspective, overall eBay has 12% of it’s GMV from vehicles (as of Q3 20110.  So there’s a 3X bump in mobile GMV.

Here’s a little pie chart that splits the $5b in eBay mobile 2011 expected GMV graphically into the three sub-components:

Ebay_mobile_gmv

eBay’s mobile penetration

Understanding this data finally gets me to an answer to a question I get asked a lot – how much of eBay’s core GMV is mobile? and how much is incremental vs. cannibalistic?  The brute force way to calculate this is to take the $5b/yr and apply it to eBay’s $66b run-rate and you get 7%.

Now we can look at the components:

  • eBay’s core GMV is $14.6b/Q and the mobile core is $3500/yr or $875/Q for a 6% penetration
  • eBay’s vehicle GMV is $2.1b/Q and $1.5b/yr mobile or $375/Q for a 18% penetration

The conclusion from all of this is that eBay mobile is really driving a surprising amount of the eBay vehicle GMV – so much that it has to be incremental.  I don’t know this space very well, but for a long-time eBay was losing ground to the likes of  autotrader, craigslist and cars.com.  Perhaps Mobile has given them a new edge in the autos category that I didn’t realise until doing this analysis.  On the core side, it’s hard to tell, 6% feels like a natural place to be and to be honest is a little light compared to what we’re seeing with other retailers that are pushing 10%.  Google for example has stated they are above 10%.

SeekingAlpha disclosure – I am long Amazon and Google. eBay is an investor in ChannelAdvisor where I am CEO.