eBay Surprises with 2018 Q3 Earnings Beat

eBay shares jumped in after-hours trading Tuesday after the company exceeded Wall Street’s expectations in its third-quarter earnings report.

Analysts expected about 54 cents per share, but the company came in at 56 cents per share. Revenue was about as expected by Wall Street at $2.65 billion for the quarter.

Some other interesting metrics from the report are:

• GMV was up 5 percent
• Revenue was up 6 percent
• Active buyer base grew 4 percent to 177 million
• StubHub volume grew 7 percent
• Classifieds platform revenue grew 11 percent
• Marketplace advertising portfolio expected to reach $600 million this year
• Promoted Listings to represent approximately $180 million
• Over 400,000 sellers promote over 160 million listings with Promoted Listings
• Promoted Listings revenue grew $120 percent
• eBay Payments has over 3,000 sellers that have enabled 900,000 transactions with $38 million in GMV sofar

Highlights from the Earnings Call

Devin Wenig, CEO

“New eBay users are responding well to the evolution of our platform, but as we mentioned last quarter, our existing buyer base has been slower to adapt to these changes. This has limited our ability to scale some new experiences and as we planned coming into Q3, we made significant marketing investments this quarter, with a focus on buyer incentives and top-of-funnel activities such as our brand campaign.”

“While some of these activities were successful and will scale, others did not deliver a sufficient return.”

“Certain of our services have been well-received across the board and others have then take more time, and an example of something that takes more time, that is really going well with new customers but is taking more time, is a full product-based commerce experience where we fully compress the product side.”

“We have a good, stable base of customers, a very successful business, and we don’t want to disrupt that. So we’ll be more aggressive with the new and we’ll go a bit slower with the existing buyers and eventually, we’ll get them both there.”

“It also requires that we redefine perceptions of eBay’s brand and business. Given that we have a large stable and successful business but must also build for the future, we’re shifting our tactics to balance the needs of a habituated base of customers who are used to shopping on eBay a certain way while pursuing an even larger base of potential customers who have different expectations. We’ll continue to focus on delivering significant product experience changes for new customers while evolving the experience for our existing base of users at a more measured pace.”

“Structured data-powered services are delivering benefits in SEO, consumer selling flows, price recommendations and new shipping services.”

“One of our key initiatives is to improve the shipping experience on eBay and that’s Guaranteed Delivery. This experience continues to gain share in the U.S., exiting the quarter with 9% of U.S. volume, and we recently launched this service in Australia.”

“From the buyer perspective, our guest checkout buyers who have historically indexed to credit card payments are showing higher conversion and Apple Pay already has a 12% share of addressable volume.”

“The eBay brand is very well-recognized, but not always well-understood and we’re very proud of the user experience.”

“This is one of the top 30 brands in the world. It’s very well-habituated, so it does take time to change the perception of it.”

“On Payments, we’re really happy with where we are. We have some product features and functions to roll out. As we said, PayPal will become a form of payment on – within managed payments at some point next year. We’ll enter the second market at some point next year, but we’re completely focused on customer benefits.”

“I’ll remind you that the operating agreement with PayPal is up in June of 2020 and after that, we’re free to do whatever we want and we’re racing as fast as we can to deliver customer benefits up to get to that date.”

Talking about payments, “We need to reduce sellers’ costs.”

“…we will be making incremental investments in our delivery experience. The one thing I don’t think we need to do is deploy large amounts of capital to build the warehouse strategy. I’ve never thought that. I don’t believe that and I think that we use data and we use the diversity of our inventory to close the gap.”

“…two-thirds of packages are delivered within two business days in the United States.”

“And we do that without a warehouse strategy, so we’re going to keep driving hard to close delivery gaps.”

“…our business seller base continues to grow and we’re really happy with our inventory mix. We continue to grow the inventory on the Marketplace. If anything, this has been more of a demand side issue than a supply side issue over the last year. It’s been the constraint on faster growth. There’s been more demand side than supply side.”

“…in the last couple of weeks, we rolled out a new direct from brand, direct from authorized reseller experience that you can see on the Marketplace. And the number of brands continues to grow because brands want choice.”

Talking about tariffs and proposed postal regulation changes:

“A majority of our China inventory is now warehoused in the United States. Obviously, they’re not our warehouses but we’ve helped our Chinese sellers with warehousing domestically so that wouldn’t be subject to those quarters.”

“We’ve also, this year, rolled out a shipping service called SpeedPAK and SpeedPAK gives China sellers multiple delivery options that don’t – wouldn’t be subject to the proposed postal changes.”

Scott Schenkel, SVP, CFO

“Looking at buyer payment preferences, as expected, we have seen some friction from buyers who are accustomed to paying with PayPal which was required on eBay for a number of years. However, we are seeing higher conversion with buyers who are more accustomed to paying with a credit card. As a frame of reference, eBay guest users who are offered all payment methods, including PayPal, choose to pay with a credit or a debit card nearly 80% of the time. And at StubHub where buyers have similar choice of payment methods, we already see 90% using credit cards for their transactions.”

“Some lower-priced coupons for buyers have worked really well. Some higher-priced ones haven’t worked as well, et cetera, but we continue to work on refining the ROIs, the appropriate level of spend, making sure we’re focused on both activity per buyer as well as new buyer acquisition.”

Bottom Line

The eBay share price continues to flounder as compared to other companies such as Amazon, they are not “killing it” in eCommerce.

While the company is profitable, growth seems stagnant compared to others in eCommerce.

Wenig admits that changes to the marketplace continues to have an acceptance problem among existing sellers and buyers. Reading between the lines, it seems the company is hoping that new buyers and sellers will make up for sluggish adoption of the new direction by existing buyers and sellers.

There seems to be a concern among many smaller sellers that the company is trying to attract larger sellers that can afford the new emphasis on free shipping, better returns, and guaranteed delivery.

That sentiment may by well founded and Wenig even stated there is a supply side problem, “…this has been more of a demand side issue than a supply side issue over the last year.”

To get the full information about this earnings report, including the full transcript of the earnings call, visit eBay’s Investor Relations page.

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