Analysis: Inside eBay’s Q4 / Full Year 2023 Earnings Call and Seller Outlook

eBay reported its fourth quarter and full-year 2023 financials On February 28, and unlike many previous earnings reports, Wall Street loved what they heard as the stock jumped in after-hours trading.

Despite nearly flat General Merchandise Sales (GMV), the company reported better-than-expected results in Q4, driven by increased revenue from advertising sales and ancillary services such as its international shipping program.

Highlights for investors also included an increase in its dividend and a $2 billion stock repurchase, all offering more value to investors.

But our focus is always on looking at the details of interest to sellers that emerge from the earnings release and the accompanying transcript where eBay executive offers more context to the numbers and business strategies.

eBay Top Numbers

General Merchandise Volume (GMV)

• Q4 2023: $18.6 billion (up from $18.2 billion in 2022)
  • U.S. GMV only: $8.8 billion (no meaningful change from 2022)
  • International GMV only: $9.7 billion (up from $9.3 billion in 2022)
• FY 2023: $73.2 billion (down from $73.9 billion in FY 2022)
  • U.S. GMV only: $35.2 billion (down from $35.9 billion in FY 2022)
  • International GMV only: $38 billion (no meaningful change from FY 2022)

Active Buyers

• End of 2023: 132 million (down from 134 million at the end of 2022)

For some context, eBay lost most of those 2 million active buyers in the first quarter of 2023 and reported the same 132 million for the last three quarters. However, the company also acknowledged minimal losses from quarter to quarter, around 1% to 2%, which didn’t change the “rounded-up” number.

Furthermore, eBay continues to provide the number of active buyers without GittiGidiyor (the Turkish marketplace it closed) and TCGplayer (a new marketplace it acquired).

However, for all practical purposes, I find that metric has become irrelevant as it only changes the active number base by one million, and this might be the last quarter they will provide that additional metric.

Active Sellers

Unfortunately, eBay stopped reporting the number of active sellers on its platform at the end of 2021. Three years ago, the company reported 17 million sellers, but it has admitted during several earnings calls that the number has decreased.

I have no additional insights, but my belief is that active sellers today account for around 13 to 15 million, based on the same decline eBay had seen in active buyers of this same time period.

Frankly, I don’t understand why they refuse to provide this metric as other marketplaces do provide it (i.e., Etsy). I have never seen a Wall Street analyst ask about it, so it appears, they don’t care and if eBay can get away without disclosing it, that seems to be fine with them.

Revenues

• Q4 2023: $2.6 billion (up 2% from $2.5 billion in 2022)
• FY 2023: $10.1 billion (up 3% from $9.7 billion in 2022)

Gross Profits

• Q4 2023: $1.8 billion (no meaningful change from 2022)
• FY 2023: $7.3 billion (up from $7.1 billion in 2022)

Gross profits are before any expenses related to operations and other financial factors such as acquisitions, business unit sales, etc.

Net Income

• Q4 2023: $560 million (down 4% from $581 million in 2022)
• FY 2023: $2.26 billion (down 2% from 2.31 billion in 2022)

Cash on Hand

eBay reported having $5.1 billion in cash, cash equivalents, and non-equity investments as of December 31, 2023, down from the previous year when the company reported $5.9 billion.

Despite what appears to be a significant decrease, let’s put it in perspective by looking at the past five years.

• FY 2023: $5.1 billion
• FY 2022: $5.9 billion
• FY 2021: $7.3 billion
• FY 2020: $4.1 billion
• FY 2019: $3.8 billion

There are many factors that explain why this metric fluctuates so much, but the bottom line is the company has ample “cash on hand” to manage any business fluctuations.

Let’s get into the nitty-gritty of the earnings call.

Deep Dive Into eBay’s Earning Call

During the earnings call, the company did not reveal any significant news. However, Jamie Iannone, President and CEO at eBay, and Steve Priest, CFO at eBay, provided some highlights on topics I believe are of interest to sellers, and I have separated them into different sections.

eBay Motors Parts & Accessories (P&A)

This category remains a key driver of GMV growth for the company. Iannone said, “our eBay Guaranteed Fit programs have benefited buyer trust and retention across the U.S., U.K. and Germany, driving incremental GMV within P&A last year.”

Furthermore, he added, “We began rolling out multi-warehouse shipping optimization to some of our largest U.S. P&A sellers that collectively manage millions of listings.”

As someone who sold in this category many years ago, this has been one of the biggest headaches for P&A sellers. While I am happy to see this finally implemented, it’s about 15 years overdue!

Also, I hope this program will be extended to more sellers, not just a select few large sellers who are primarily “wholesale” parts distributors or brands that sell to consumers online.

There are many small sellers who do a tremendous volume by utilizing multiple warehouses and brands. While this is a drop shipping strategy, it’s one that is legal under eBay rules.

One surprising metric Iannone revealed is that “more than 100 million vehicles “have been “saved in the My Garage section of eBay by active customers.”

With an active buyer base of 132 million, this suggests many P&A buyers are saving more than 2 or 3 cars. It also makes me wonder if repair shops are using eBay to find and buy parts. I know from my own experience in this business that it wasn’t unusual.

In addition, he remarked that having this data will help eBay “leverage this valuable data” to build better shopping experiences.

One example Iannone cited was a new predictive feature introduced in Q4 that “offers AI-driven auto part recommendations based on a vehicle’s mileage.”

eBay is not done with making P&A better, and with more consumers hanging on to their vehicles to avoid monthly payments or paying high prices at dealerships, there is a lot of continued opportunity in selling vehicle parts.

Expanding the eBay Authenticity Program 

While eBay has been introducing more features and opportunities that benefit P&A sellers, its Authenticity Program is another crucial driver of its “focused category momentum” to grow GMV among the cohort it calls “enthusiast buyers.’

As a reminder, enthusiast buyers spend about $3,000 annually on eBay, and according to Steven Priest, that group continues to make up about 16 million buyers, or about 12% of all active buyers base.

With the company continuing to roll out minor changes in existing markets and categories, it is also seeking new markets.

Iannone discussed how eBay recently launched its “eighth authentication center in Tokyo, Japan; our first center focused primarily on cross-border trade.”

Currently, this center focuses on authenticating luxury handbags but “will expand to other highest categories over time.”

Japan is one of the world’s leading and rapidly growing markets for personal luxury goods, and eBay is trying to capture a slice of that market. The new authentication center is just the beginning of what could become a major opportunity for sellers globally.

Focus Categories

Many long-time sellers are well familiar with how the company has been concentrating on growing so-called focus categories. I think it’s fair to say that not all sellers are on board with this strategy and at times feel that it’s all eBay cares about.

In response to a question from an analyst, Iannone said that focus categories “continue to outperform the rest of the business. For FY 23, it was a 4% year-over-year growth, about seven points ahead of the business.”

Like it or not, eBay sees growth in focus categories and continues to invest in developing those categories as it makes the most sense for the marketplace overall.

Therefore, if you are not selling in one of those focus categories, you may continue to face some headwinds in growing your business, as new buyers joining eBay may be more inclined to seek products from focus categories.

Germany, UK, and Cross-Border Trade

Germany is eBay’s third-largest marketplace and like much of Europe has been under pressure from macroeconomic realities, especially in the ecommerce sector.

While eBay has killed cash on pickup in Germany – a still prevalent method in many consumer transactions – local pickups remain very common, probably more common than in its two top markets, the U.S. and the UK, or elsewhere in Western Europe. To that extend Germany is a bit unique.

Iannone acknowledged Germany is a unique market, and they have been investing in a strategy based on growing in other markets more similar to the U.S. and the UK while also being mindful of the uniqueness of German consumers.

He said, “We adopted a similar approach to our vertical playbook to address the unique needs of German consumers.

“These changes included language enhancements and improvements to search, SEO and recommendations, shipping and return label improvements, and a complete overhaul of the local pickup experience.

“In January, we further improved local discovery in Germany by introducing a new map-based browsing experience, which services trending and recently listed items through an intuitive interface based on what’s nearby and easy to pick up.”

Iannone further explained that these investments have already helped consumer-to-consumer (C2C) GMV return to positive growth in a market that has been challenging “where overall ecommerce growth has been negative in recent quarters.”

Both Germany and the U.K. are dealing with highly challenging economic environments. However, in the short term, eBay appears slightly more bullish on its German marketplace versus the U.K., its second-largest marketplace.

Iannone believes that in both countries, their core strategies on focusing on value is helping mitigate the macroeconomic challenges in those countries.

“I think the reason that our refurbished business, for example, is so strong, our luxury business is so strong, is that even in challenging times, people are looking for a value on the marketplace,” he said.

While eBay seems to be focused on improving domestic sales in those markets, I believe the opportunity remains soft for U.S. sellers to ship to eBay’s second and third-largest marketplaces.

These consumers are looking for value, and as long as that drives the buying interest from shoppers, cross-border sales are going to remain a challenge for U.S. sellers wanting to expand to Europe.

Priest added that “international GMV was down nearly 1%,” but that number includes cross-border trade between all countries, including within Europe, which in many cases means the same currency (Euro) as well as lower shipping costs and trade regulations.

Overall, there was little discussion about international markets or cross-border trade during this earnings call, suggesting that while the company had focused on expanding that side of the business over the past year, macroeconomic conditions are playing a significant role in expecting any significant improvement over the short term.

Iannone did respond to one analyst’s question about cross-border trade, stating, “It [international shipping] will continue to be a focus,” and eBay will persist in making it easier “for buyers and sellers to interact across borders and drive that strategy forward.”

Generative AI

With AI having become a buzzword for every tech business, eBay also embraced the technology benefits of Large Language Models (LLM) last year.

AI or LLMs are not new ideas; they’re just more at the forefront now that technological advances have made them more accessible for the average consumer and allowed companies to implement them more easily within their platform.

Iannone remarked, “After the first commercial large language models became available from companies like OpenAI and others last year, we immediately found ways to leverage generative AI technology to improve the eBay experience across selling, buying, advertising and marketing.”

Furthermore, “we began fine-tuning open-source LLMs using eBay’s proprietary commerce data on our own infrastructure.

“These models include a smaller number of parameters and thus operated faster and more cost-efficiently than commercial LLM when operating at scale.

“But we also found these fine-tuned LLM could perform as well or in some cases, better than commercial LLM across certain dimensions and use cases, such as generating listing descriptions.”

By the end of Q1 2024, the company plans to double its data processing capacity in conjunction with its continued adoption of this technology.

He added, this will enable the company to use “eBay’s nearly three decades worth of ecommerce data” to pre-train its LLMs from scratch.

Furthermore, it will improve its “magical listing experience that has already been used by millions of sellers, which we believe makes it one of the most widely used Gen AI features in ecommerce to date.”

Iannone said, “Generative AI descriptions have rolled out to 100% of users in our top 5 markets,” and “adoption trends remain healthy.”

“[O]ver 90% of customers [sellers] actually take the content that we have and include it in their listing,” he added. “It has a satisfaction score of 80, which is very high for a brand new release on the product, and continues to get better each day.”

The next phase of eBay’s magical listing experience is being tested by up to 5% of C2C sellers on an opt-in basis, Iannone revealed.

He believes “this experience is even more seamless as it leverages our image recognition technology and generative AI to prefill or suggest product titles, categories and other item aspects using photos alone.”

Early feedback from beta users has been encouraging, and the company expects to roll out this new experience to more sellers this quarter.

eBay’s use of AI is also showing benefits by enabling “sellers to create cleaner, more professional product images, which Iannone said has received “rave reviews from customers.”

One new fascinating idea the company is testing allows sellers to showcase their products with various AI-generated backgrounds.

For example, Iannone explained, “you can display a pair of Air Jordan sneakers on a hardwood basketball court or showcase your preowned hiking boots a top of Pictures Mountain Summit.”

“We are currently testing this feature in beta with 1% of sellers on iOS devices,” he added.

Advertising Revenue

This will not come as a surprise to sellers today that advertising continues to be a growing business for eBay. The company reported that Promoted Listing products generated $393 million in revenue in the fourth quarter, up 20% from last year.

For the full year in 2023, eBay took in over $1.4 billion in advertising revenue, up roughly 25% “and more than double our ad revenue in 2019,” said Priest.

“We currently have over 900 million live promoted listings” on the marketplace, and “Promoted Listings advanced, our cost per click [CPC] unit was the largest contributor to sequential advertising growth,” he added.

Still, the primary driver of all advertising revenue is the company’s eBay’s Promoted Listings Standard product, but the CPC product is making inroads, and for sellers who have not used the Promoted Listing Advanced product, that is something to contemplate.

One interesting feature Priest revealed is that “during Q4, we launched a top-picks carousel for search, which provides a curated set of promoted listings ads comprised of hyper-relevant top-selling items from our highest ranked sellers.”

He added, “buyers have been highly engaged with these ads providing added velocity for our sellers.”

In other words, for sellers who focus on highly relevant products, maintain the best feedback, and use eBay’s advertising products, the company is helping those sellers drive more business through their advertising programs. Again, sellers should take note here!

Take Rate

Given all the positive details about advertising revenue for eBay, Priest admitted that the company’s take rate, the average revenue generated per sale, remained flat for 2023, and it was slightly down in Q4 at 13.8% on a quarter-over-quarter basis.

This may come as a surprise. However, Priest was optimistic that “we anticipate our take rate expansion to be primarily driven by continued healthy growth in advertising revenue throughout 2024.”

Of course, foreign exchange rates also directly impact the take rate, especially for a company whose GMV is now more significant outside the United States. So, that may be part of the explanation for the flat take rate overall.

However, eBay’s take rate has risen over the past two years. For comparison purposes, if we go back to the 2021 financials, the company revealed its take rate at the end of the year was 11.8%.

Therefore, in two years, it has grown 2 percentage points from ancillary services such as payments, ads, and labels, in addition to increases in vendor costs the company passed through to sellers.

Keep in mind the take rate doesn’t include any associated costs. For example, eBay makes a little profit on its eBay Labels and eBay Managed Payments programs, and the take rate would only include the profit portion, not the price it has to pay vendors.

That is why a seller’s “real” cost of doing business on eBay is higher than the take rate because of those vendor costs.

eBay Layoffs

This made a lot of news earlier this year, and Iannone addressed the recent layoffs as necessary “restructuring” to better align “our expenses with the growth of our business, and I’m confident it will enable us to accelerate innovation…”

Among tech peers, they are not the only company that has been rightsizing their business, and it appears that AI is playing a role here as well.

He added later to a question from an analyst: “I would say internally across the organization, we’re also pushing very aggressively to drive productivity in the organization” through AI.

Iannone revealed that “our engineers [are] now using copilot tools as they do development in our customer support centers” and that eBay has been “using AI to really change the level of engagement we have with customers.” 

He didn’t reveal more beyond this. But it sounds like customer support will have significant help from Artificial Intelligence.

I wouldn’t be surprised to see AI becoming eBay’s primary first line of customer support, trying to resolve many questions for buyers and sellers before they are advanced to a “live” person.

Iannone already revealed that AI is helping “summarize initial responses,” which is not a too-distant step from actually answering customers directly without the “oversight” of an employee.

eBay – The Marketplace

Veteran sellers continue to lament the death of the “old eBay.” It was less complicated to drive traffic to your listings. Mainly driven through SEO hacks such as keyword stuffing, sellers who understood how to game the system were able to generate sales.

Today’s ecommerce is far more complicated, and eBay as a platform has evolved significantly, which requires adapting to today’s customer expectations and using more tools to drive traffic to listings.

During the earnings call, Iannone said that the “vast majority of our traffic is organic. People coming to the eBay app or typing in ebay.com, which is a key benefit” for the platform.

“[O]ur focus on non-new and seasoned is very unique, and our drive towards refurb, luxury, authentication, and the trust we put on the marketplace is a real differentiator for us.”

He added, “we’ve seen the fourth straight quarter now of growth in our luxury business. Our refurbished business maintained double-digit growth all in a somewhat challenging macro environment.”

In response to a question about U.S. ecommerce competition, especially in light of Temu’s recent advances and promotions in the market, Iannone said, “we really haven’t seen a significant impact from them on our business.”

Furthermore, he explained that eBay has a “differentiated strategy,” with its “focus categories and going after non-new in season.”

Years ago, he added, “we really moved away from the low ASP [Average Selling Price], low quality items on our marketplace. And that hasn’t been a focus for us for many years now.”

My View

The main take is that eBay’s business seems to have stabilized across the board. While the marketplace still offers a great variety of categories, the stabilization appears to suggest that focus categories are driving more of today’s business for eBay.

Car parts are a hot category because new vehicle costs have become so out of control that many people are keeping cars and trucks longer. The build quality of cars also has helped keep them on the road longer.

Over the last few months, car and truck manufacturers have returned to offering promotional financing and rebates, but will that change consumer behavior in the short term? I doubt it.

Macroeconomic concerns have had less of an impact on the luxury business, and refurbished or pre-owned products have gained traction because of macroeconomics.

In some ways, this represents an economic dichotomy, and eBay has been trying to focus on both ends of the spectrum to capture buyers.

Iannone remarked that the “vast majority of our traffic is organic.” This means most buyers are coming to eBay because of the brand rather than because of off-platform marketing campaigns.

The eBay brand is no longer just an “online fleamarket” brand but one that appears to attract a much broader consumer base, from those seeking bargains to those seeking luxury.

Compare this to Etsy, which still relies heavily on external marketing to drive traffic to its platform as the marketplace tries to brand itself among consumers.

One thing is crystal clear. Today’s eBay differs from 20 years ago. Keyword stuffing and other simple listing tricks will not make a seller successful.

With nearly 2 billion listings, it will take advertising to drive traffic to your listings, and eBay’s growth in that area clearly shows that sellers are buying into on-platform marketing campaigns.

As I already mentioned, eBay didn’t talk much about cross-border trade during this earnings call, and I believe the economic challenges in large markets like the UK and Germany are a big part of that.

Buyers coming to eBay for bargains are less likely to buy from overseas sellers unless you offer products not found easily in their home countries.

Of course, that doesn’t mean abandoning cross-border sales opportunities, but I firmly believe the focus in the short term should be on domestic sales.

During the Winter Seller update, the company announced several fee “adjustments” globally. However, Iannone and Priest did not discuss these changes during the earnings call. Frankly, they seemed petty to me and will have no meaningful impact on the company’s bottom line except to irk sellers.

Maybe this is a new strategy as increasing fees is going to become more difficult for eBay and small tiny incremental changes may become the norm and will seem less impactful.

As we look forward, there are two metrics I would like to see improve. One is the number of active buyers, which while it has stabilized, that metric needs to see improvement to believe in the turnaround truly.

The second metric is seeing growth among enthusiast buyers as its been stagnant at 16 million for several quarters. Again, the “turnaround strategy” is based on these enthusiast buyers, and with eBay stating GMV in the focus categories is growing, one would assume this cohort should also increase.

With GMV on non-US marketplaces growing slightly and the company also stating that it is facing economic headwinds in its two biggest global markets, bargain hunters appear to be driving GMV internationally.

That may explain the stagnation of the enthusiast buyer metric, assuming in the U.S., eBay is reaching more enthusiast buyers today than it did a few years ago while also losing those buyers internationally due to these macroeconomic factors.

Hopefully, by the end of 2024, we’ll have more clarity as European economies continue to improve.

The bottom line is that eBay’s business is doing okay, and for once, Wall Street investors were happy as the stock rose after the earnings call and has continued to stay up.

Sellers who are struggling need to look at their product mix, the categories they list in, and potentially embrace Promoted Listing products to promote their listings.

The opportunity is there, but eBay is a different platform today than 10 or 20 years ago, which means adjusting to today’s eBay and ecommerce realities is a must for success.

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