eBay shares dropped after close yesterday following the publication of earnings, but how bad were the eBay Q3 2019 results? In the grand scheme of things they’re not that bad at all, but more concerning is a long term mediocre performance compared to ecommerce as a whole.
When you look at the numbers and consider all of the problems the marketplace faces – the CEO leaving, Investors diverting their attention with an asset review, you could conclude that eBay turned in a surprisingly solid quarter. It’s worth comparing the numbers with the same quarter from 2018:
|GAAP and Non-GAAP EPS per diluted shhare
|$0.73 and $0.56
|$0.37 and $0.67
|Returns to shareholders
|$1.0 billion of common stock
|$1.0 billion of share repurchase
$115 million paid in cash dividends
($0.56 per diluted share)
($0.67 per diluted share)
Taken as a whole, the numbers are comparable in many ways to this time last year, but the one thing that is missing is growth. Ecommerce is growing so why isn’t eBay. Also, after returning $115 million to shareholders in dividends, on exactly the same revenue eBay made an additional $9 million profit. That money can only come from one place and that’s pretty much $124 million additional fees on flat sales. It could be argued that some if this comes from mediated payments where eBay charges fees rather than PayPal, but equally it could be argued a lot of it comes from Promoted Listings where sellers volunteer to pay more on every sale.
Where eBay has really come off the rails in their Q3 results isn’t their performance itself which was solid, but a lowering of expectations for revenue in Q4 in the range $2.77 billion to $2.82 billion, representing with EPS in the range of $0.73 to $0.76. (ANalysts had expected $2.85 billion revenue and EPS of $0.76).
The biggest concerns for sellers should be active buyers are increasing and so are total fees but sales aren’t growing. eBay are barely holding level and in real terms as ecommerce accelerate that puts them in a downward market share with revenues (sales) effectively flat over the past two years and only modest growth for the past five years.
eBay touted improvements in their earnings notes but, whilst some may be welcomed, none are programmes which are going to increase overall buyer activity and generate more sales in anything other than an incremental way: Payments (grows eBay’s profit but doesn’t grow sales), Promoted Listings (costs sellers but effectively appears to just moves sales around rather than growing overall sales), Terapeak integration (sellers could previously use as a standalone product), additional seller protection (no help if you’re not selling anything), Managed Delivery fulfillment service (relatively small to date), and Multi-User Account Access in the US (might help with account security but doesn’t grow sales).
Whilst all that sounds a bit glum, let’s not forget that eBay is still a $95 billion marketplace and that’s an enormous amount of business up for grabs. What it does mean is that on eBay you have to work harder for sales and if you’re not working smart then you’ll be forced to pay more for sales as eBay increase their percentage take rate. Putting aside execution of the recent Item Specifics, filling out attributes and tidying up all areas of listings from returns and delivery options to optimising titles and ensuring prices are competitive is just as important as considering pay to play eBay Promoted Listings.
Even with price rises in recent years, selling on eBay is largely cheaper for merchants than selling on Amazon. What we now need is a new eBay CEO who will push investors to the sidelines, get rid of distractions, either sell off or keep strategic assets, and get on with taking a long hard look at the marketplace and get to grips with why buyers aren’t buying more and generating double digit revenue growth. I hesitate to tell them how to do their job, but perhaps lowering the visibility of cheap goods shipping from China and (where appropriate) highlighting products listed domestically that can ship fast and can be delivered on a one-day courier might be great places to start.
At the least, if eBay are going to beat sellers in order to qualify for Premium Service listings then they could at least enable buyers to filter search to show Premium Service listings ensuring they are offered a free economy delivery service and a reasonably priced express option for those that want an item in a hurry. That is after all simply today’s Retail Standards that every other online venue offers as a routine minimum.