eBay Q3 2014 Results – A Seller-Oriented Deep Dive

October 16, 2014

ChannelAdvisor Scot Wingo By Scot Wingo

Wednesday, October 15, 2014, eBay announced their Q3 2014 results.  The results were postive for PayPal and negative for eBay:

  • Overall Revenue – Met expectations coming in at $4.36b.
  • Separation – eBay’s management originally called the spin off of PayPal as a ‘split’, but now they are using the word separation.  There was lots of talk about the separation, but not much new information other than re-iterating that the move will make it easier for eBay Marketplace and PayPal to focus on their different situations.
  • Payments – PayPal did very well and is growing much faster than e-commerce.  We don’t cover payments here, but the majority of concern seems to be from PayPal facing increased competition on the mobile and off-line fronts.  PayPal TPV grew 28% y/y which is about 2X the rate of e-commerce which was impressive.
  • Tickets – Tickets are still a tough area (StubHub vs. TicketMaster, etc.) and eBay is in defensive mode here. On the call, Bob Swan (CFO) said: “Both volume and take rate are down and growth is not quite where we’d expected it to be.”
  • Marketplaces – Unfortunately, the bulk of the call was spent around the underperformance and challenges of marketplaces.  Year over Year GMV growth decelerated for the fifth straight quarter and came in at 7% – less than half the rate of e-commerce growth.  The main contributors mentioned by the management team are the may Google SEO change and the password reset.  In most of the Wall St. notes out this morning, analysts are skeptical and worried there are more systemic issues around global competition.

Donahoe summed up the Marketplace performance: “eBay is clearly facing some near-term challenges. Its growth is neither what we wanted nor what we expected.”

On top of a bunch of tough Q3 datapoints (details later), eBay also signaled they are expecting a sluggish holiday by lowering their Q4 guidance.  Reading the Wall St. notes today, the implication is a 6% decrease from prior estimates – primarily driven by marketplace weakness.  We won’t know if this is an eBay only view or if it is also shared by Amazon until they announce next week.

Marketplace segment key metrics and analysis

Here is our dashboard of key metrics we monitor from eBay’s Q3:

Ebay_q3_dashboard_final

As you can see, there’s a lot of red on the dashboard.  Here are the three key metrics we are keeping an eye on:

  • GMV Growth – Overall y/y GMV growth was well below expectations primarily due to the data breach and SEO problems that eBay had starting back in May.   Overall GMV grew at 7% with the same result for both the domestic and non-domestic.
  • Sold Item Growth – At eBay (compared to Amazon), this metric ‘matters’ more because it is more relevant and tends to track GMV unless AOVs increase/decrease materially (which is why we watch it).  Sold items came in at 9.1% a decrease from Q2’s 9.5% and what you would expect given the GMV slow down.
  • Active users – This was the only moderately bright spot for the marketplace segment.  Active users grew to 152.3m – a 13% y/y growth rate which means 3.4m new buyers came to the platform in Q3 (Q2 was 3.9, so this slowed sequentially from an absolute and % basis).  This is the best signal of the future we have and it is good to see eBay continuing to add new buyers.

Marketplace trends are troubling

The data from the dashboard above is a snapshot that only shows you Q3.  What’s more causing more alarm bells with the Wall St. analysts is the trends of all these datapoints.

Here are some six quarter (18 months) views of the key datapoints.

Sold items:

Ebay_q3_sold_item_table

GMV growth:

Ebay_q3_gmv_table

Active buyers:

Ebay_q3_active_buyer table

As you can see with the exception of Active Buyers – there’s a downward trend on sold items and GMV growth that started back in Q2 13 (e.g. US GMV declined 17%->7% over that six quarter span).

(All of these datapoints are from eBay’s Wall st. presentation)

A lot of time on the call was spent talking about the remediation of these trends.  Here are the highlights.

 

What is eBay doing to address the marketplace declines?

Brand campaign

eBay’s management team revealed some new details about the Q4 branding campaign called “Shop the World” (there’s a new landing page here fyi):

  • This is the largest campaign they have run in 4-5yrs
  • It is going to run in 3-4 countries

SEO Challenges

  • Majority of their traffic is organic
  • SEO is still important, especially for new users
  • It’s less than 15% of their traffic (this was revealed in an answer to a question)
  • eBay is unique with 800m listings that change over every 14 days
  • They are implementing a ‘new approach’ to SEO and a ‘long term solve’
  • Later in the call they mentioned they are going to make their 800m unstructured listings look more like “structured data” – this could be a revival of the catalogue project they have started and stopped 2-3 times over the last 10+yrs.

Breach Challenges

  • Once the breach was discovered, eBay forced a password reset
  • “Majority” (>50%?) of users have gone through password reset
  • Unfortunately many forget new and need another reset (I’m raising my hand on this one, plus my mobile app is all messed up now on 3 devices – ugh).
  • They are making some improvements to the signup, pwd change and other ‘flows’
  • The global brand campaign should help push folks over this hump
  • Also other investments in marketing to increase traffic

Other initiatives

There was some somewhat vague talk about eBay starting to focus in on their “target customer segment” which was described as “eBay will be focusing more aggressively on those customers where we can compete and win.”  There are several ways to interpret this.  My reading of the tea leaves:

  • This could mean eBay might change their focus on buyer segments.  Today’s eBay buyer segment is what I would describe as the value shopper.  eBay has been experimenting with luxury designers on the site, so perhaps they want to go up-scale as they believe they can win there vs. the value segment. Or on the flip side, maybe they have realised that luxury buyers don’t come to eBay and they need to double down on value.  Their actions in the last six months point more to a move up-market (recruiting luxury brands, suspending used good sellers, etc.).
  • One of the historically fastest growing categories on eBay is parts and accessories.  Part of that success is eBay has a very unique and differentiated buying experience there that is very tailored to that buyer.  Perhaps what they mean here is more vertical category experiences.  I would strongly recommend this and it’s always been a mystery why eBay doesn’t do more of this. eBay used to be ahead on this concept, but Amazon has pulled way ahead and even come into eBay’s back yard by launching vertical buying experiences around collectibles.
  • Looking at the growth rates of fixed-price vs. Auctions, maybe an extreme move would be to sunset the auction format?  The data is undeniable that the format is not popular with consumers, so maybe it’s time to take a bigger move here.  Or maybe they restrict auctions to certain categories.
  • Donahoe mentioned on the call they don’t think same day delivery is important to their target segment.  eBay’s CEO and the rest of the team have been increasingly negative on the eBay Now opportunity (same day delivery), so I’d be surprised if they a) expand that program and b) continue it long-term.

Finally, the management team did mention “adjusting cost structure and redeploying resources”.  Several journalists speculated this was a signal that some kind of headcount reductions were coming to the eBay marketplace.

Other Marketplace metrics of interest

For sellers, the biggest headline from Q3 is the slowdown in US GMV. Donahoe called out a couple of interesting tidbits on the call:

  • Top Rated Sellers (TRS) was 50% of GMV (conversely non-TRS was 50%) – this is a new high watermark since eBay has been discussing this datapoint.
  • 56% of transactions featured free shipping (44% did not) – another high watermark.
  • Cross-Border-Trade (CBT) – CBT increased 27%, bringing it to 22% of overall GMV.
  • Mobile – Mobile grew 67% y/y and is now 21% of overall GMV.  Specific to the marketplace they said mobile MP volume is up 41% to $7b.
  • Fixed-price grew 15% (in-line with e-commerce).
  • Fixed price is now 79% of GMV.
  • Auctions were a pain point, down 7% .

Action items for sellers from eBay’s Q3

This was another really tough quarter for eBay and while we haven’t seen Amazon’s results for comparison, it’s clear that overall the eBay marketplace is losing share.

If you are a seller, your action items from the Q are pretty clear:

  • A diversified strategy with many marketplaces and e-commerce channels is the best protection against any one channel having headwinds.
  • For ideas of new channels, check out our latest September SSS report. Note that Amazon, ‘other 3PM’ and Google Shopping/PLA are all growing significantly faster than e-commerce’s 15% rate.
  • The ‘quadrant’ of fixed-price and TRS is where the growth is at eBay – the playing field is tilted heavily this way, so for most sellers it is worth the economic cost hit to be here.
  • Mobile and cross-border-trade (CBT) are big initiatives for eBay so you should try and make sure you are utilizing them by making sure your listings are mobile friendly and that you are experimenting with programs like eBay’s Global Shipping Program (GSP) and the UK-based Click and Collect, which appear to be growing much faster than eBay and e-commerce overall.

Next week we will cover the Amazon results on sister site Amazon Strategies.

Scot Wingo wrote this blog post. I am CEO of ChannelAdvisor.