eBay Q3 2019 Earnings have disappointed investors with a cut in outlook for the full year resulting in a ~3% drop in the share price since they closed before the announcement.
However it’s not all bad news. Active buyers continued to grow at 4% to 183 million global active buyers and eBay have concluded their operating review, resulting in three-year plan to improve margins and reinvest in customer initiatives.
eBay Business Units
In the eBay Q3 2019 Earnings, Marketplace platforms delivered $2.1 billion of revenue and $20.5 billion of GMV. However Marketplace revenue was down 1% on an as-reported basis and was up 1% on a FX-Neutral basis. Worse news for sellers, GMV was down 5% on an as-reported basis and down 2% on a FX-Neutral basis.
It’s worth noting that an increase in active buyers and decrease in GMV might not make sense – how can more buyers be buying less overall. The reality is that there is a known lag between new buyer activation and increased GMV generally follows a little later. However active buyers have been growing at 4% quarter on quarter so it really is time that the GMV kicked in and the slow down points to underlying problems with the marketplace.
StubHub
StubHub platforms drove revenue of $306 million, up 5% on both an as-reported and FX-Neutral basis, and GMV of $1.2 billion, flat on both an as-reported and FX-Neutral basis.
Classifieds
Classifieds platforms delivered revenue of $265 million, up 4% on an as-reported basis and up 8% on a FX-Neutral basis.
“We performed in line with expectations in Q3 while improving the Marketplace experience, creating better customer outcomes, and maintaining momentum in advertising and payments. We also made progress on our portfolio review and completed a thorough operating review that has resulted in a three-year plan to drive margin improvement while enabling reinvestment in critical customer initiatives.”
– Scott Schenkel, interim Chief Executive Officer, eBay Inc
New revenue streams
eBay Payments
eBay has now processed over $1.1 billion in payments for more than 20,000 sellers, with over $500 million of those payments processed in Q3. In September, the service reached 9.4% of volume in the US and has now launched in a second market, Germany.
Promoted Listings
First-party advertising also continued its momentum. More than one million sellers now leverage promoted listings, promoting over 300 million listings on the marketplace, which has resulted in revenue of $103 million, up 119% on an as-reported basis and up over 120% on a FX-Neutral basis.
Potential spin offs of StubHub and Classifieds
eBay have reported they have completed an extensive operating review resulting in a multi-year plan for operating efficiency. These efficiencies, combined with 2019 margin expansion and reinvestment, are expected to drive 3 points of additional operating margin by 2022 and create capacity to reinvest in critical customer initiatives.
eBay say that they continue to review the role and value of StubHub and Classifieds in its portfolio to determine the best path forward and anticipate sharing an update on the StubHub business before the next earnings release. This is an interesting statement and one might be forgiven for thinking this indicates StubHub is slated for sale and Classifieds may or may not be for sale but currently no buyer is in the frame.
12 Responses
“improving the Marketplace experience…” What planet is this guy from? Really? Does Schenkel not even know the mess they’ve caused to the site and p*ssed off both buyers and sellers?
Will be interesting to see what all this means for sellers in terms of future fee hikes.
Transaction fees for each item in an order will be a real pain for sellers of low value items and needs to be scrapped for a fairer system.
Across the pond there are also problems emerging with Managed Payments, with many sellers waiting 2 weeks or more to receive their payments, causing cashflow problems.
What? Ebay mismanaging the rollout of a program? Surely not.
Look out for news footage of cars causing carnage by driving the wrong way down the freeway, or guys feeling their way round the outside of their building looking for the way in, It’s Ebay execs trying to get to work.
They wonder why more buyers buy less. I think the word they are mis-using is buyers.
They have got more viewers looking at items then going over to Amazon. Pics and descriptions tend to be better on ebay but the prices are more expensive.
All down to eBay taking a cut of the shipping and extras for promoting and higher shop fees and just about putting there greedy little fingers into every aspect of the pie.
How long till they realise that higher costs mean higher prices mean less buyers.
Here is our comment, as financial analysts covering EBAY with a SELL rating:
Sold items -3%; FX Neutral GMV -2%; Classified FX Neutral growth at record lows of 8%; flat StubHub GMV and draining a record-high (unsustainable?) take rate; all this points to EBAY officially in recession. So much for Elliott draining the cash – which, by the way, saw an outstanding $913m in FCF, but with capex cut in half, lower cash tax and a cut to working capital – there is no escaping that EBAY is on an accelerated downslide, in all areas.
The strategic review yielded … a Plan. For. Incremental. Margin. That’s it. Another 2ppts net of investment. Including Payment “profits.” Over three years. In other words: nada. An update on StubHub promised in 4Q, but it saw weak performance. No update on Classifieds will come this year, even though its 50% autos, and Elliott thought it would fetch 10x sales. Banker’s dreams of hefty transactions are dashed. Spencer Stuart looking for a new CEO. Who wants the job? And will they have any leeway to reverse the smash and grab cash raid which Elliott is leading?
They brought down the top end of guidance range (-1% to 1% growth, woo hoo) and the 28-29% margin now is “~28%.” An earnings recession accompanies the business shrink: the high-end of non-GAAP EPS guidance is +8% for 4Q19… but 11ppts comes from buybacks. They saw a doubling of growth in Promoted Listings to $103m, but this shows how poor underlying growth is. The US marketplace business has three Qs of -5-6% GMV in a rising e-commerce market. They blamed Internet sales taxes for -3% of the -6% US figures and see this accelerating into 4Q19 and into 2020. It will be interesting to see whether AMZN and others blame this. Int’l markets are also seeing increased competition. Payments is now up to $500m intermediated, but this is just taking more out of a declining sales base, and cant accelerate in next few Q’s until they get to the end of the operating agreement. Mix effects and Promoted Listings mean they get more transaction revenue from the same GMV, but its squeezing more out of a shrinking base.
The outlook for 2020 sounds grim. Low single-digit growth in 2020, weighted towards 2H, with low-single digit EPS growth (facing 7ppts of headwinds). Talking about headwinds “for next few years” in 3P ads as it shifts to 1P ads. The “out-years” benefit includes what they had baked in for Payments (the $2bn and $500m of profits is a “2022” number), so its not a lot of “new profit” – the interim CEO said “we don’t have a finalised plan yet.” Managed Delivery is on the cards, but they are light-years behind AMZN. There is so much work to do here, from attracting a new CEO, to fixing the many issues they are not addressing, and admitting they have to focus on horizontal issues before doing anything in the vertical categories where they are getting picked off. This is a dying platform, losing relevance, with awful seller feedback and declining spend (-8%) per active buyer. Less is less. Wonder how long Elliott will stick with it when its clear a turnaround is a long time in coming.
Of course they didnt take our Q, which was:
• We have seen multiple execution issues this year, most recently with Item Specifics, updating Seller Hub, payment scams in UK and Germany, and so on. How should investors square these frequent glitches with ongoing cost reduction efforts prompted by your activist shareholders? Is there an appetite on the part of management to reverse course and instead recycle cash back into improving the platform’s performance?
When they say more buyers…. do they actually mean indivuals actually buying or just people visiting…. Very important point.
Then there is the mystery around sales figures…. where is the mystery? The fatc is that ebay is now flooded with Chinese sellers, selling stupidly cheap tat, much of which is fake or of very questionable quality…. CE marks etc? well yes i have seen some of them on stuff that is definately not genuine!
Every page is either filled with these Chinese sellers or with people selling stuff they dont have then using amazon to forfill to avoid postage costs etc. This is what has driven prices down. Those decent sellers selling decent products at a sensible price, have either gone or are going… We are left with the tat. And that is where the so called mystery lies…
Of course what ebay could have done is act on it… but instead they looked short term and just saw sales. They failed to see the long term damage. In fact the only long term thing they see if seller fee hikes!
Richard, thanks for sharing your analysis.
And thank you for submitting that question. The accepted softball questions were disappointing; now we know someone had at had at least teed-up a substantive question regarding the “buyer and seller pain-points” that was (unsurprisingly) ignored.?
i have a call with their IR later today. I will post what they tell me from that. Who they can get to be the next CEO… lets see!
Or maybe the issues are with all bugs and technical issues started from 9.09.2019…
Right now eBay is total mess …they can’t integrate their Seller Hub for 3 years…and they decide to do it when the Xmas approaching …very cleaver :-((((