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eBay to Foray into Fulfillment

Posted on Monday, Nov 11th 2019

eBay (NASDAQ: EBAY) recently reported its third quarter results. Its GMV declined in the US and it missed revenue estimates. While the new internet sales tax laws are partly to blame, increasing competition is also a tough challenge for eBay.

eBay’s Financials

eBay’s Q3 revenues remained flat over the year at $2.6 billion, missing analyst estimates of $2.65 billion. Net income narrowed to $310 million or $0.37 per share from $720 million or $0.73 a year ago. Adjusted EPS was $0.67, beating the analyst forecast of $0.64.

By segment, the Marketplace platform revenues grew 1% to $1.83 billion, with US GMV declining 6% to $8.5 billion and international GMV up 1% to $13.2 billion. eBay’s transaction take rate, the fee it charges sellers to use its platform, grew to 8.93% from 8.39% a year ago but was down from last quarter’s 9.4%. Global active buyers and customers increased by 4% to 183 million.

StubHub transaction revenues were flat at $286 million with its GMV flat at $1.2 billion. Marketing services and Other revenues were down 5% to $534 million with revenue from Classifieds growing 4% to $265 million and marketplace marketing revenue declining 16% to $254 million. eBay is yet to decide on the fate of its StubHub and Classifieds businesses. It is expected to take a final call in the next quarter.

eBay experienced strong momentum for its two new business lines. Since launching the managed payments offering approximately one year ago, eBay has 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 U.S. and successfully launched in a second market, Germany. 

First-party advertising also continued its momentum. It now has over 1 million sellers promoting over 300 million listings on the marketplace, which has resulted in revenue of $103 million, up 119%.

The company’s cash and cash equivalents and non-equity investments portfolio totaled $4.2 billion as of September 30, 2019. The company repurchased approximately $1.0 billion of its common stock, or 25 million shares, in the third quarter of 2019. The company’s total repurchase authorization remaining as of September 30, 2019 was $3.2 billion. The company also paid cash dividends of $115 million during the third quarter of 2019.

For the fourth quarter, eBay forecast revenues of $2.77-$2.82 billion with non GAAP EPS of $0.73-$0.76. The market was looking for revenues of $2.81 billion with an EPS of $0.76. eBay expects to end the year with revenues of $10.75-$10.80 billion and an EPS of $2.75-$2.78. The market was looking for revenues of $10.78 billion with an EPS of $2.77 for the year.

eBay’s New Offerings

During the quarter, eBay introduced new tools and features to enhance the customer experience and attract sellers to its platform. It integrated Terapeak into Seller Hub in major markets. Terapeak is a suite of features that help sellers identify what to sell, when to sell, and how to price inventory. The company also introduced additional seller protections.

eBay also continued to enhance the new buyer experience. It announced a Managed Delivery fulfillment service in the U.S. and bolstered its grocery partnership with Coles in Australia. Additionally, Multi-User Account Access became available for sellers in the U.S., with a planned expansion to Germany in 2020.

eBay’s GMV Slowdown

eBay’s GMV in the US has been declining by 5% to 6% each quarter through the first nine months of the year due to the new internet sales tax laws. The impact is expected to persist in the fourth quarter and through 2020 as California, Texas, and nine other states enacted their laws last month.

However, the slowdown in GMV is not just limited to the US. International GMV growth has also declined from 7% growth a year ago to just 1% this quarter.

eBay’s biggest competitor Amazon also faces the same internet sales tax challenge, but it is growing at over 20%. To offset the GMV slowdown, eBay is taking a leaf out of Amazon’s playbook. Pricing for eBay’s new fulfillment service will be competitive with the rest of the industry and it hopes to attract more sellers. But eBay will be getting into another highly competitive arena with this move.

Its stock is currently trading at $35.14 with a market capitalization of $28.6 billion. It touched a 52-week high of $42 in August. It had fallen to a 52-week low of $26.01 in December.

Photo Credit: Mike Knell/Flickr.com

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