eBay Q2 results - conference call thoughts

Instead of combining results and thoughts on the call, this Q, I tried to separate them out somewhat so refer to this 'first thoughts' post for a quick view of the results.

I'm putting comments/observations from the call into three buckets vs. doing a chronological transcript as those are available all over the b-sphere now.

1. Body language - What's the mood?  Any tips on positives/negatives around eBay core?
2. eBay core - All eyes are on the marketplace business, so I tend to focus on this.
3. PayPal/Skype - Anything interesting that came up around PayPal/Skype.

Body language

• JD hinted that the early results from the MP changes are positive/exciting.
  • Strong set of assets, bold changes
  • Changes needed for collective good
• Rajiv is retiring and Lorrie will take his place.  This effectively seems to take a 'layer' out of the management structure and while I think Rajiv is an asset, I'm a big fan of a flatter org and I know eBayers will appreciate this.  Steph has an expanded role, details are here.
• During one Q+A, Youssef asked about Q3 and any softness in guidance.  Swan talked about the economic concerns, they are impacted by unit volume in vehicle.  Format changes in vehicles and Motors impact.
• Consumers are migrating to lower-ASP items across all categories (ASPs were cited as a big factor to GMV slow-down - see slide 10).  eBay encouraged Wall St. to watch sold-item trends as ASP/GMV girate around based on economy and changes.
• We will continue to coupon and do less marketing
• We will likely make category-based changes
• We WANT to have more poweseller discounts

eBay Core

• In the accompanying presentation, I noticed there's more data on GMV growth.
  • In the US, Q207 was $6.7b and Q208 was $7b - a .3b increase or a 4% y/y growth (not negative as I originally feared).
  • For Intl, Q207 was $7.8b and Q208 was $8.7b - a .9b increase or 11.5% growth.
• This is before FX comes out so the GMV growth slow-down appears to be international.
• According to the slides, Active user growth was 6% y/y ex-china, that appears to be an about the same as Q1.
• JD covered some of the changes eBay has made to the marketplace business and talked about the buyer focus.
  • DSRs, BM, etc. working
  • Number of powersellers with DSRs > 4.8 have doubled
• Bob Swan went through a neat slide here.
• Couponing - during the Q+A, the question was asked about how much they are doing. Marketplaces revenue was impacted by 3 points - a) lower take rate, b) higher discounting for powersellers and c) coupons.  coupons are contra-revenues.
  
• Large seller discounting - (I think the questioner was talking about buy.com, but Bob answered around powerseller discounts)
• Bob also mentioned that sales+marketing are down as they are using coupons (this could be around google spend).
• Q: Any category specific pricing, timeline?
• A: Evaluating results
• Q: Buy.com - how do the economics work?
• A: Buy has great service and is an example of incenting and rewarding all sellers (small to buy)
• Q: GMV growth was 4% - lowest in years, what did you put into your guidance?
• A: Swan: focused on velocity (back to slide 10 essentially) and long-term that will lead to gmv growth. Making progress on successful item growth.  GMV growth was hit by lower ASPs.
• Q: If you strip out motors, GMV growth was 12%, if you look at FX, is it 4% impact?
• Q: Will we continue to see slowness of Motors,etc.? around Korea, etc?
• A: Implications going forward - GMV from vehicles will continue to be weak, long-term the model is changing.
• Shipping costs are down 10%
• NPS is up
• Swan hinted that they will monetize things in different ways and thus sold items can also have different monetizations.  Mentioned paypal penetration and advertising as beneficiaries of velocity.

Paypal/Skype/Misc

• Nothing really to add here, the call (Q+A) was almost 100% focused on the MP biz.

Conclusions

Some good color on the marketplace change. I can see eBay's conservative 2H08 stance given all the macro-economic issues out there.  Given Wall St's short-term nature, I think they'll view the Q as mostly negative in that there were some increasingly negative trends around GMV growth and active users.  I'll keep an eye on analyst notes tomorrow and post a summary of what they are thinking.

Seeking Alpha Disclosure - I am long google.

Comments

[NT]

It seems you have possibly moderated out (or possibly I have failed to find the thread?) all comments regarding the additional 15% FVF most overseas sellers now must pay because of DSR (shipping time, and cost) in relation to lowest search listings. Its only a matter of time until a class action suit forces ebay to pay back some of these losses to sellers.

Other venues are available that treat the sellers with respect AND appreciation, not like children to be punished. What a bloody joke. 50 years old, in the stamp and collectable business for 30+ years and now my hands are slapped if a buyer has to pay 3.00 for international shipping (most complaints from US buyers)and leaves a low DSR rating.

Possibly your experience selling in the US is much different than ours abroad. To begin with, as a foreign Seller I am REQUIRED to offer paypal as a payment option on the sales page. REQUIRED. This leads us to the fact that most of the items we sell net 100.00 plus. Because I have been burned SO MANY times by buyers claiming goods never arrived I now MUST require that tracking is paid for on all purchases over $100. The minimum tracking available is $26.00 EMS in the US for international and the same in Thailand, THATS IT. All buyers with more than 100 ++ feeback (or repeat buyers) may elect to pay our standard W/W shipping rate of 3.00 instead of the tracking rate.

So now I am PAYING ebay FULL listing fees and coming up at the BOTTOM of the search. Its hurting my sales and FVF to ebay a lot more than the 15% extra they are collecting from me. The hits have dropped more than 30%!
What they are doing is charging me (a seller of more than $20,000 per month) the full fee and delivering SUBSTANDARD service (This may be legal- but ethical?). Buyers come to a site that has good material and not junk like the other failed corporate auctions.Prices are down because the is a boatload of JUNK .99 listings. Judging by the lowered quality of material now available in ebay listings, they buyers in my area will be moving on.

A final note, we have a personal ebay sales rep (employee of ebay) that checks in with us regularly. Our problem according to him is not unique within the circle of asian sellers.

I believe anyone who is professional dealer has similar feelings as those mentioned above. Armchair sellers rarely care if they turn a profit, its more for something to do and the “thrill” of selling something even at a loss. Is that what ebay wants? We have given the system a chance the last 7 months at the urging from our ebay personal sales rep....but all his promises have proven (as suspected) to be empty. I anticipate that we will sell the usual USD$20,000 this month, but then will move to pastures with more dignity and respect, as deserved.

Oh by the way I see it has been decided that neutrals should no longer count against your feed back rating....starting AGAIN in August!! Its only hurt my rating and sales for 4 months!!! Yes these are sharp people, wink wink!!

NT

[Stephen]

And yesterday (July 17th, 2008) theStreet.com reported "second-quarter earnings beat wasn't enough to overcome investors' disappointment late Wednesday over the company's failure to show meaningful growth.

Shares of eBay were off 6.6% in recent after-hours trading to $26.24."

They also reported "The online auction giant blamed the slowing economy and a drop in the average selling price for items trading hands on its site."

I don't know who else noticed, but we, as powersellers on eBay, immediately noticed a drop in the average selling price for items IMMEDIATELY after Best Match was implemented. Other changes we noticed were the reduction of watchers shortly after items were listed, and a reduction of bids (we only do auction and store on eBay) early in the listing process. Bids used to come early after listing before Best Match and now they come the day of or the day before auctions end. Sell-thru rates are no where what they used to be before Best Match. For the fees we pay, this is just not worth it and we are slowly moving over to other venues where the fees are much lower and we can actually sell our items for a higher price.

Bottomline, Best Match is just not working for us even though we have high DSRs. My guess is that many other sellers are feeling this too, and since we are paying the fees while companies like Buy.com or getting a free ride we just don't think it is worth it anymore.

[Scot]

Shipping costs are down 10% and Consumers are migrating to lower-ASP items across all categories , no matter which way you look at it this is no good. Scot you are missing the mark here, ebay is broken both short and long term. The way I read this is sellers lower s+h because sales are getting clobbered with eBay’s new Best match. They cannot make up for lower s+h in merchandise price. margins already squeezed by high take rates get squeezed further .Couple that with the fee increase we saw in Feb spun by ebay as a fee decrease. What you get is a recipe for disaster and look for more sellers to leave the site real soon. GAME OVER EBAY.

From 5/25/2008 to 7/16/2008 (52 days), the number of NARU and Inactive eBay Sellers (sellers with no feedback for the past month, past 6 months or past 12 months) ranked in the top 100,000 by feedback on SellerDome.com has increased nearly 15.1%. On 5/25/2008, 18.5% (18,514) of the Top 100,000 eBay Sellers were NARU or Inactive. Today, 21.3% (21,308) of the same group are NARU or Inactive.