“This tougher economic environment” was a phrase repeated over and over again in the eBay Q3 2008 investor conference call.
JD started off upbeat, reporting year on year growth for all the eBay businesses, but the truth is growth has slowed, partially due to the world economy. eBay’s revenue was reported to be up 12% on this time last year, but it’s only growing at 9% instead of the 23% of a year ago.
Talking about feedback JD stated eBay have seen a clear move by buyers to purchase from sellers with the highest DSRs at the expense of sellers with lower feedback scores. In the US some of the highest rated sellers saw sales grow by as much as 26% in a year. The not so good news is that buyers are not spending more on eBay overall – that means keeping feedback DSRs high is essential for winning sales over your competitors.
eBay’s growth is coming from PayPal, Advertising, Classifieds and Skype. The eBay marketplaces is about the only business that isn’t reporting strong growth and PayPal for the first time saw more revenue from off eBay merchants than they did from eBay related payments.
“Modestly higher” fraud losses were attributed to expanded PayPal protections. Although that’s not great news for investors it is for buyers and sellers – that’s the loss we used to stand!
Finally near the end of the call came an interesting question from Imran Khan of JP Morgan – when will conversion rates rise again – which showed a lack of understanding of how the recent fee changes have affected the marketplace. With insertion fees low (and for some free, or close to free), it’s not surprising that listings are up substantially but it’s unrealistic to see a similar increase in sales.
Conversion rates will never climb to the level they were at prior to the September fee changes, a better measure of success for the future is sold items (growing a modest 6%). More importantly they won’t increase until buyers start spending more on eBay. eBay’s focus is now buyer retention which is why eBay are directing them, via Best Match, to sellers with the best feedback for (hopefully) a better, safer buying experience.
eBay already have all the buyers, now they just need to figure out how to keep them and keep them spending.
eBay adjusted earnings guidance down slightly due to the stronger US dollar (53% of revenue is now from outside the US), acquisition costs (Bill Me Later, dBA and BilBasen) and a tougher economic environment.
It’s remarkable that eBay is reporting PayPal’s off-eBay earnings exceed its eBay related business: that makes PayPal the most prescient acquisition. Skype’s numbers are also amazing.
Apparently high DSRs only apply to small busineses and casual selers because I research many categories and find many large volume sellers with DSRs in the 4.0 to 4.4 range ALWAYS getting best match while smaller volume sellers with much higher DSRs rarely if ever get exposure in best match.
Heck my fiance and I both had ebay stores, were both power sellers, both had 99.8 feedback ratings and our DSRs were alway 4.8s and 4.9s, yet ever single month we’d get red flagged, our visibility would suddenly drop as well as our discounts supposedly because someone during the month rated us 1 stars yet we both had many 100s of consecutive positve feedbacks with awesome comments normally left by all our buyers.
My fiancee and I both lost all trust in ebay, closed our stores and stopped doing any business on ebay several months ago. I think its ironic, anytime we purchase something on ebay, we promptly get some survery sent by ebay asking us about the transaction. YET, after 6 years of selling on their site with over 20,000 total sales between our two stores, ebay never once followed up with a survey or phone call inquiring as to why we stopped doing business on ebay after being power sellers for 5+ years.
In our opinion, if you arent one of the larget 5-7 volume sellers in a particular category, chances of always maintaining visibilty on best match are slim no matter how good your sell thru rates and buyer satisfaction ratings are. We both had sell thru rates of higher than 70 percent on most anything we listed in auction, and we both generated alot of store sales even when we werent listing in core prior to Donahoe taking over. Once he started implementing all these radical changes our sell thru rates plummeted to about 20 percent, and our store sales vanished completely as well as our listings in google.
Quite frankly, my fiancee and I are just relieved to no longer be doing business on ebay. Now we focus much more on more profitable local sales and our websites with sales steadily improving despite the sluggish economy.
As ;ong as ebay continue to court mass merchandisers on the site, ebay can expect to continue see a decline in buyer traffic as more and morebuyers begin shopping directly on these big guns websites along with a growing number of samll volume sellers continuing to stop selling or buying as they establish roots on other sales venues like ebid, ecrater, Ioffer, graiglist, onlineauctions, etsy, bonanzle, goantiques and a host of other fast growing sites. I dont think ebay realize just how many small sellers have been contacting all their previous ebay buyers and telling them about the new site(s) they are selling on. Over time, I forsee at least 10-15 percent of ebay once steady/avid buyer base no longer shopping on ebay at all….which ultimately with impact ebay’s revenues, profits and GMV not to mention the losse in paypal revenues as more and more sellers use a google merchant account over paypal.
I’m wondering if buyers are purposely looking at the feedback and DSRs or if they are buying from these sellers because best match told them to. Any information on this?
I have to say I find it odd that sales wouldn’t be booming on ebay and they are blaming the ‘credit crunch’ as I would expect that ebay would grow at this time, people are looking for a bargin and ebay should be the first place they would go!
Any discount high street chain is booming at the moment, Aldi is now growing rapidly off the back of the ‘credit crunch’ as well as the chains of 99p stores.
Also online is still set to grow in a massive way, ASOS are raking it in as well as other proffessional online stores and I bet Amazon won’t be reporting rubbish reports this year!
Ebay are lucky there are all these problems to hide under as I would suggest all their messing has made a difference to the site and people using it. I have been talking to quite a few buyers who just sell a few personal bits and bobs and they can’t be asked with all the new changes.
We will just have to see what happens.
#4 Sales *are* up on eBay by 6%
However eBay motors has divebombed – people can’t afford to swap their car, and average selling prices are trending down. That means eBay’s take rate (fees) ain’t quite as healthy plus the adjusted fees to be low up front and heavier on the back end so they’re getting hit from every direction on profits (not to mention 53% of biz is now overseas and with the $ strengthening they’re losing on the exchange rate)
#3 The transcript of the call is now available on Seeking Alpha, the part you’re interested in is on page 3.
6% is a very big drop in terms of growth Chris.
If the next few quarters this trend continues, then it will soon be stagnation and then loss.
I cannot help but think that Skype and Paypal are growing because of one simple point, these have not been subject to this philosophy of “disruptive innovation” that Ebay are currently finding fashionable.
I would love to see Ebay brand itself as the place online for small business, the nurturing centre of the web, which was an ethos that produced such massive growth for Ebay.
But it does seem they are trying to become the place for big business.
I doubt that Ebay understand their own strengths.
When they started they opened up the possibility of having a small business to millions of people, and it worked.
Now they seem to want to court big business and remove the “small seller”.
I do not however think their current model will work and would suggest a massive reversal in the next 12 months will be on the cards, when the growth becomes decline.
Because they seem to have lost complete touch with their user base and their past success.
Wouldn’t this be a nice slogan:
“Ebay the friend of small business”.
“Ebay the betrayer of small business and friend of big business”.
It does not matter if the second is true or not, the perception of many is that this is case.
Perception soon becomes reality.
This is not a negative post as I want Ebay to succeed, but I want it to succeed for the little people.
That is what made Ebay great.
I do not think the current management team understand that, or if they do they are not very good at communicating it…
#7 Mark I don’t think eBay was ever really in touch with small business.
My perception of eBay is that it is like a big ball that keeps rolling. It’s still got some way to roll yet & the new management is trying to give it a bit more momentum (& I think they have) but it is definitely slowing.
I agree sales are up 6% but it should be up alot more and booming, sales at some discount stores are up well in double digits in growth.
Second hand car sales have grown by 21% just latley its the new car sales that have slumped, so again ebay should be growing strongly in this area!!!!!!!! but they are not!
Our sales and profit have shot up since we were kicked off ebay in march, in 7 months we have bulit up the websites to sell more than we even did on ebay!
I really think they should be growing more and taking advantage of this time of downturn, but they are playing around to much.
#9 You’re right – my biggest takeaway is that buyers aren’t spending more on eBay, they’re just spending more with sellers with high DSRs and less with sellers with low DSRs
Imran from JP Morgan really doesn’t get the new listing strategy. He’s downgraded eBay shares stating that there are a “number of critical issues that are dragging down results for the venerable online marketplace, including declines in the conversion rate despite gains in the number of listings”
He goes on to say “the company has yet to deliver meaningful improvements in search functionality or user experience, which we believe is evident in the inverse relationship between the listing growth rate and conversion rate”….. I really don’t think he understands that putting all of your inventory on eBay changes the relationship between number of listings and number of conversions dramatically.
Conversions HAD to go down when sellers start putting all of their inventory on eBay. I’m not saying he’s wrong to downgrade his opinion of the future performance of eBay shares, but at least do it for the right reasons 🙁
Just goes to show that people who don’t actively use the site regularly for buying and selling have no idea of the reality or complexity of the system and thus are not qualified to comment or advise. It’s just too embarrasing!
#12 “Just goes to show that people who don’t actively use the site regularly for buying and selling have no idea of the reality or complexity of the system”
Are you talking about eBay staff or city traders?
13# Both (unfortunately)
Surely its the job of Ebays advisers to meet with these analysts and explain the changes in advance.Ebay must have known the importance the Market places on Conversion data.
The conversion rate will continue to fall as the quarter progresses.
More proof eBay is run by a complete idiot.
the highest rated sellers saw sales grow by as much as 26% in a year.
Yes, best match is shoving their items up to the top, ofcourse their sales will increase. I can pretty much guarantee that buyers are not basing the decision whether to purchase an item or not on the seller’s DSR rating being a 4.4 or 4.8. 4.whatever is excellent, and I would buy from any seller above 4.
The not so good news is that buyers are not spending more on eBay overall – that means keeping feedback DSRs high is essential for winning sales over your competitors.
And here is the proof that the new strategy by eBay management is absolutely fruitless in the sense that it in no way achieves what it was intended to address. Wasn’t the whole point of all this messing with eBay’s workings to get customers to stay on eBay and spend more?
It is not working, they are not spending more, and the only thing that has happened is that John has p*ssed off sellers and lost them as an income generator, as sellers paying fees and as buyers making purchases.
Sellers that ARE left on the site are left to play stupid games to try and get their DSRs up, so they can fight for the customer base which is not spending more but is rather declining as they are offended by the new policies, and leaving.
An entirely pointless exercise, which if anything, has damaged the eBay marketplace. I am not shy to share this with visitors of my new online store;
Sales are starting to pick up bit by bit.. Google Checkout is up and PayPal will soon be eradicated as a payment method. eBay, you will get 0 from me, as opposed to a peak of 6,000 GBP in eBay / PP fees per month. It is not the economy. I am spending the same money with your competition, GOOGLE.
I think JP Morgan have got it spot on when they say this.
“He goes on to say “the company has yet to deliver meaningful improvements in search functionality or user experience”
I’ll take your point about the conversion rate but when both buyers and sellers are complaining about all the constant changes and worst match, it has got to point out that something is very wrong.
The simple fact is, that JD has broken ebay and the share price is reflecting that. There are just too many people of every forum, Usenet and bulletin boards, websites etc (including ebay’s own forums) stating the negative things that have already been posted in this thread.
Even at $13.69 a share yesterday, I wouldn’t want to buy them. Pease don’t say it’s down to the Credit Crunch, as already stated, ebay should be doing better in the hard times and Amazon’s share price hasn’t dropped anything like ebay’s in the last 12 months.
@ # 13
This is completely off topic but on AuctionBytes someone just nominated you as JD’s replacement.
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