eBay Q1 2020 earnings and impact on marketplace sellers

eBay Q1 2020 earnings were reported on Wednesday evening. eBay beat their own targets but slightly missing on analyst predictions for sales. Revenue was $2.374 billion with GAAP and Non-GAAP EPS per diluted share of $0.64 and $0.77. Shares were down slightly in after hours trading from a close of $39.03 to currently sitting at $37.72.

Highlights of the eBay Q1 2020 earnings investor call were a hello from the new CEO Jamie Iannone and news that the marketplace had a bit of a wobble but since the start of April is seeing sales 20% up as buyers get buying and sellers get selling.

Leadership

New CEO Jamie Iannone opened the call with a welcome to himself but left the rest of the call including the Q&A to Scott Schenkel (who was interim CEO) and Andy Cring (interim CFO).

“eBay is where I spent the most time in my career and I’m really excited to re-join the company. eBay’s remarkable success story with amazing assets, robust organic traffic, and long-standing customer relationships around the globe, I truly believe the company has tremendous opportunities to capitalize on this foundation, innovate for the future, and grow its ecosystem. These are some of the reasons why I was so compelled to return to eBay and play a leading role in shaping the company’s path forward.”
– Jamie Iannone

I’ve spoken to many ex eBay staff members over the years and without a doubt what’s interesting is over a period of time they view eBay from afar, often with a clearer perspective then when they worked for the company, and with an eye to the past all have constructive criticism to make of eBay in the present. Jamie, having been out of the eBay game for a decade will have seen the changes and doubtless will have his own opinion of what’s working and what needs to change and we’ll all find out his planned direction in the months ahead.

What’s more interesting however is the impact for eBay sellers trading on the marketplace and naturally Coronavirus has had an impact on performance:

Marketplace Performance

As a global marketplace, as eBay saw inventory restricted in China in January and February, the vacuum was taken up by Western sellers. Equally more recently as Western markets started to quarantine China came back online and inventory started to ship again. The important net result for sellers is that whilst sales may have been disrupted, GMV has been growing at over 20% since the start of April.

“Before the dynamics surrounding COVID-19 started impacting our business in late Q1, our key metrics were performing better than our expectations through the first 11 weeks. The roll out of new and expanded experiences for buyers and sellers along with the acceleration in managed payments and ads were driving improvement in GMV and revenue despite the continued headwinds from Internet sales tax and reductions in marketing spend that skewed towards the U.S.

Since then, COVID-19 impacted our major markets as shelter-in-place actions were required and we saw an immediate change in the growth trajectory. In Marketplace, there was an initial surge in home confinement categories in late March, which then expanded in April across all verticals including parts and accessories, fashion and more. Since the start of April, GMV has been growing over 20% in our major on-platform markets every week.”
– Scott Schenkel, eBay

Payments

eBay have ramped US payment volume right up to the limit allowed in their agreement with PayPal and in Germany grew from 3% in December to 6% in March and expect to hit 10% by mid-year. At that point in July, the PayPal agreement ends, UK sellers will start to come onboard and the majority of sellers are expected to transition by the end of 2021.

“We are confident in our plan to transition the vast majority of sellers starting in July through the end of 2021 as managed payments will become the only way to buy and sell on eBay. We remain on track to realizing an incremental $2 billion in revenue and $0.5 billion of operating income in 2022. As a reminder, these economics do not include any benefits from improved experience or reduced friction for buyers and sellers.”
– Scott Schenkel, eBay

Promoted Listings

Good news and bad news – Promoted Listings continue to drive more revenue for eBay which means on average you’ll be paying more per sale. However eBay revealed that raising standards has dumped some sellers from Promoted Listings which increased conversion rates for the good sellers – again a double edged sword, good sellers get more sales but it costs them more. The other bit of good news is that third party ad revenue is dropping meaning less off-site ads and more sales for eBay sellers.

“Advertising continues to drive revenue growth and had a strong start to the year. In Q1, Promoted Listings delivered $137 million of revenue, up 111%. Nearly 1.2 million sellers promoted more than 310 million listings in the quarter. Sellers continue to adopt Promoted Listings to drive conversion while buyers are seeing a better eBay experience with fewer third-party ads.

Although third-party ad revenue continues to decline, our overall advertising revenues grew more than 25% for the quarter. In Q1, we raised performance standards for all sellers which modestly reduced the number of Promoted Listings, but yielded improved conversion. We remain on track with our plan to deliver $800 million in total ad revenue this year on our way to building $1 billion advertising business in the next couple of years.”
– Scott Schenkel, eBay

Seller Initiated Offers

If you’re not using Send Offer to Buyer then it’s time to start doing so. It’s free (other than offering a discount along the lines of Best Offer and it works well.

“Seller initiated offers allow a seller to offer lower prices to individual buyers to drive conversion. In Q1, this scaled to over 1.5 million offers per day, driven by increased adoption in item eligibility.”
– Scott Schenkel, eBay

Structured Data

Regardless of how painful Item Specifics are, eBay say that due to targeted improvements (where they recommend to sellers which Item Specifics will have the greatest impact) conversion rates are improving.

“On the buyer experience, we saw an increased conversion through improvements in search that were enabled by growth in structured data. Based on behavioral data, our algorithms recommend to sellers which information can maximize the velocity of their listings as sellers add more structured data in the form of aspects, their listings are increasingly showing up in filtered search results.

This leads to higher conversion as buyers are more likely to discover and purchase their items.”
– Scott Schenkel, eBay

eBay Classifieds

eBay said that Classifieds have had a rough time during the Coronavirus crisis but are already recovering and are positioned to exit the pandemic stronger than ever. However they also said they’d report back with an update on Classifieds by or before the next earnings call in three months time and “remain committed to maximizing value for shareholders”. That probably means Classifieds will be flogged off in the next quarter.