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eBay Needs to Shape Up

Posted on Friday, Oct 20th 2017

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According to a BI Intelligence, US consumers spent $385 billion online in 2016 and are expected to spend $632 billion online in 2020. The number of online shoppers in the US grew by nearly 20 million in 2016 to 224 million shoppers.

eBay’s Financials

eBay’s (Nasdaq: EBAY) Q3 revenues grew 9% over the year to $2.41 billion, ahead of the Street’s expectations of $2.37 billion. Net income was $523 million or $0.48 per share. Non-GAAP net income was $514 million, or $0.48 per diluted share, in line with analyst estimates.

By segments, revenues from its Marketplace grew 8% to $1.6 billion. Stubhub revenues grew 5% to $273 million. Marketing services and other revenue increased 12% to $530 million including Classifieds revenue of $235 million (up 19%).

Among operating metrics, eBay’s active buyers rose 2 million to 168 million at the end of the quarter, excluding customers in India. Before eBay sold its India business to Flipkart in August, it had 171 million active byers. It reported that the gross merchandise value transacted on the marketplace platform grew 9% to $20.5 billion. GMV for Stubhub improved 2% to $1.2 billion.

During the quarter, eBay repurchased $907 million of its common stock.  The company’s cash and cash equivalents and non-equity investments portfolio totaled $11.4 billion at the end of the quarter.

For the fourth quarter, eBay forecast revenues of $2.58-$2.62 billion or a growth of 6%-8%. It expects EPS in the range of $0.40-$0.45 and non-GAAP EPS in the range of $0.57-$0.59. The market was looking for revenues of $2.62 billion and an EPS of $0.59.

For the full year, eBay forecast revenues of $9.53-$9.57 billion with an EPS of $1.85-$1.90 and non-GAAP EPS of $1.99-$2.01. The Street had forecast revenues of $9.54 billion for the year and an EPS of $2.01.

The Amazon Threat

eBay is investing heavily in marketing and a revamped website to compete with Amazon. It has started offering a three-day guaranteed delivery service, and its marketing expenses rose by nearly 5% in the quarter to advertise this service.

To compete with Amazon’s Brand Registry suite of tools to weed out fakes, eBay has launched eBay Authenticate. The authentication service can be used to to list luxury handbags and wallets from 12 high-end brands including Balenciaga, Burberry, Celine, Chanel, Christian Dior, Fendi, Goyard, Gucci, Hermes, Louis Vuitton, Prada, and Valentino. eBay plans to expand the service into other categories and brands in 2018. Its Verified Rights Owner (VeRO) program allows rights owners to report counterfeit goods.

In May, eBay sold its India business to India’s leading e-commerce site Flipkart. eBay also invested $500 million in Flipkart’s $1.4 billion round in May. The investment will make eBay an exclusive partner with Flipkart and will enable it to increase its penetration in the country by allowing eBay’s global inventory accessible to the Indian market. Additionally, eBay’s users will also have access to the Indian inventory provided by Flipkart.

eBay, like most other e-commerce players, is reeling under the constant pressure of Amazon’s dominance in the sector. Amazon has been at the forefront of adapting to changing consumer shopping habits. eBay will have a tough time if it doesn’t streamline its strategy.

The conservative forecast has disappointed the market and its stock is currently trading at $37.09 with a market cap of about $39.7 billion. It hit a 52-week low of $27.28 in October last year and a 52-week high of $39.28 early this month.

Competing with Amazon is a formidable task, and investors are treading with caution.

Photo Credit: Mike Knell/Flickr.com

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