eBay Q1 conference call

eBay released mixed Q1 results today.  The conference call was one of the most interesting that I've heard because of some hot topics facing all large sellers they dug into such as the reversal of stores in search (SIS), eBay express (confirmed for next week!) and the huge increase in trust and safety actions.  All of these changes are substantially taxing the seller base and it will be interesting to see if this has a negative Q2 impact.

The ‘stores in search (SIS) debacle

(said during Bob Swan's, new CFO, opening remarks)

It’s important to look at US GMV growth in the context of the change we made to include store inventory listings in all search results. We launched an increased exposure in February and have since reverted back to the previous functionality in the USA and Canada. Our expectation before we made this change was that overall volume on the site would increase, benefiting both buyers and sellers. Instead, when we rolled out the change, the shift in the overall balance between auction format and store inventory format new listings began to impact the buyer experience as an overwhelming number of search results were returned.

This, in turn, resulted in lower GMV in the USA than we expected, which also slightly impacted Q1 revenues. As Q2 progresses, we will continue to monitor site activity to ensure that the rollback restores the optimal balance of activity on this site.

background: In Q1, revenue per listing was down substantially, this question from GS’s Anthony Noto (usually bullish on eBay) was interesting and I believe directly related to the SIS problem.

Thank you very much. Meg and Bob, a couple of questions. The first question is, why wouldn’t we see a recovery in revenue per listing? If you look at the calculated revenue per listing in the first quarter, it was down 4% year-over-year. I’ve never seen revenue per listing decline before on eBay, and the quarter showed that you just had a higher conversion of closed listings, which have a lower ASP. If those are not being merchandised as well, sort of at the end of the aisle, the mix should go back.

Trust and Safety

(said during Meg’s intro)

We continue to invest in trust and safety to ensure that the marketplace remains a clean and well-lit place to trade. In Q1, we stepped up education among users and made it easier for the community to report problem items. In Q2, we plan to roll out additional initiatives to limit prohibited items and expand our world-class detection systems. Our efforts in this area are vital for maintaining the vibrancy and long-term health of the marketplace.

(said during Bob Swan’s intro)

We anticipate making some changes to trust and safety to continue to improve the shopping on the site. We know that’s the right thing to do for the long-term. In the short-term, it could have an impact on revenues.

Confirmed addresses (in context of EE)

I think the sellers have really decided this (shipping to unconfirmed addresses) is actually a good thing, that it offers them incremental value and the trust and safety risk around shipping to unconfirmed addresses is not meaningful.

eBay Express

(meg intro)

Launching next week is eBay Express, which will give shoppers a quick and easy way to find items at a fixed price for convenience-oriented buying. EBay Express is generating a lot of excitement among our sellers, and many have launched eBay Stores in anticipation.

This growth was driven by stores’ listings, which grew over 160% year-over-year, to reach 85 million new listings in the first quarter. The phenomenal sequential growth in new stores this quarter drove this rapid acceleration, as sellers increasingly turned to the stores’ format to capitalize on the pricing structure, new functionality and the upcoming launch of eBay Express.

** Commentary – I disagree, store listings popped (many times to the detriment of core) in Q1 because sellers LOVED the SIS integration. This was not in anticipation of EE

(meg in answer to Noto’s rev/listing question)

In terms of recovery in the revenue per listing, you know, we may see that. But, the other thing of course we have launching is eBay Express. We do not know quite what the dynamics of eBay Express is. We’re very excited about it. Our sellers are excited about it. But, as you know, it is a fixed-price only that will be populated in large part by eBay stores inventory format.

We believe it will be incremental but may still depress the revenue per listing based on the mix, which would still be the right thing to do from the consumers’ point of view. It would be the right thing for GMV. But it might depress revenue per listing. Because we haven’t launched it, we don’t know. I don’t think it will be a big depression, but it could be some. You know, we just don’t know.

What we have learned at eBay over the last 8 years is until you launch these new formats, until you launch the new incremental functionality, you don’t actually know what it is going to do because no one has done it before.

** Commentary – Again, disagree, the rev/listing was a direct SIS problem and should pop back nicely. Until EE is driving substantial GMV, there won’t be rev/listing cannibalization.  The one trick is international, by not rolling back SIS in other countries, there could be some rev/listing exposure.

Comments

[Eric]

Does anyone have an understanding for why management felt compelled to crank up option grants in Q1 2006? Now that options expense is reported per GAAP and more importantly, the investment community is discounting sharholder value accordingly, this seemed like a very foolish decision.

[Chuck]

Scot,

I agree with your commentary that the up swing in store listings are a result of SIS rather than Sellers getting ready for EE. Not that I am a conspiracy theorist, but I can say I am a bit "Jaded" when in comes to eBay changes; I honestly think eBay planned the entire SIS scenario down to the roll back contingencies.

Let's say that SIS worked as they anticipated; GMV went up and the buyers were satisfied with the search results thus were purchasing more. Ebay just hit a grand Slam out of the park!

However I truly believe they had calculated a contingency plan in the event things did not work. Ebay is smart enough to know that by including store items in search they will generate more interest in stores. Sellers who have never thought of opening a store will open one and existing store sellers will increase product in their stores. This is a no brainer due to the fact that you can list items for a month at .03 with a gallery.

So now they can back out somewhat gracefully (by eBay standards) and have the added benefit of being able to claim the increase in store participation is due to sellers preparing for EE.

Chuck