eBay Strategies

Amazon launches Amazon Checkout!

Note: I clarified this post here with another post.

We've been reporting growing reports of a purported "Amazon Paypal killer" that have been increasing from a low hum to a deafening buzz lately. 

Well, today Amazon has launched the Amazon Checkout website (but no press release yet?).  Amazon Checkout (I'll call it AC for short) is the next logical step for them in payments, moving them from a simplistic payment API to a full-blown portable checkout system. Like google checkout or Paypal express checkout, AC gives internet retailers the ability to provide an Amazon checkout experience on any website.

This is an interesting entry into the market for several reasons.  Let's look at the pros and cons:

Pros:

• 81m reasons to love AC - Amazon reported in Q2 that Active buyers at Amazon grew 18% to 81m. I'm going to guess that easily 95% of those have their 'wallet' at Amazon.  AC gives that wallet portability.  Personally Amazon has the best wallet information for me of anyone. They have several personal/biz CC's and probably 25 different addrs that have been used over the years for gifts, etc. Giving that portability is the single biggest attraction of AC.
  • Note that Paypal has 62m active accounts, growing at 18% y/y so Amazon leaps ahead on this metric. Paypal does not break out this metric by 'paypal classic' (payment mark) vs. paypal express checkout (PPEC)
  • Google Checkout does not release these metrics.
• 1-click. Amazon owns the patent on 1-click and it looks like this could/will bring 1-click to any site.
• Volume!  Remember that this is the dog food that amazon has been eating for a long long time.  This payment system already enters the world with $4b/Q or a $16b/yr TPV rate thanks to Amazon direct-TPV alone. 
  • Note that Paypal does about $16b/Q and Google doesn't report, but it's much smaller than these so AC enters the race with a solid second-place showing.  Also, Paypal doesn't break out PPEC.  PPEC has been very buggy for our customers and most have it turned off because it doesn't work with many eBay features. If you defined the market as "checkouts" then AC could very well be a significant leader by TPV.
• Robustness - Volume has the side-benefits of increasing robustness.  Robustness means many things such as: excellent fraud technology, up-time (if AC is down, Amazon is down), etc.

Cons:

• Amazon's biggest weakness in general in the world of ecommerce technology like this is that they are trying to be both a technology provider to retailers and a competitor.  Large retailers (TRU, Borders, etc.) have left Amazon's third party business en masse because of this and I don't imagine they will be jumping for joy to add Amazon's checkout to their sites. For example, you won't be seeing Wal-mart.com add this any day soon.  This actually plays to PayPal and Google's advantage and I'm sure as a first response we'll see them play up these fears: "Do you REALLY want Amazon seeing all of your transactions, learning about your top sellers and then using that data to compete with you?"  The fact that Amazon has a well documented history of using partner data to their advantage in the third-party selling world will make this argument very believable.
• Fees - The fees are pretty standard, if not on the high side.  I was hoping we'd see something bold like ACH for a nickel or something like that.  As-is they are kind of 'yawn'.   It could be that this is initial pricing and maybe by the holidays they will run some special pricing.  It could be they are also looking to understand the fraud models.
• Traffic? - GC and PPEC both offer traffic benefits as they are tied to search engines and enhance CTR via a cart icon/badge system.  Amazon doesn't have anything like that at this time.  It would be interesting to see Amazon explore something like this.  I'm warming up to live.com for product-based searches, so maybe there's an angle there.
• AC not on eBay - How fast do you think it will be before eBay adds this to the banned payment list because it isn't "proven to be safe" like they did Google checkout?

Amazon Checkout - what to watch

Given the pros/cons outline above, I think what we'll see is AC get some initial traction in the mid-tier and SMB areas for internet retailers.  Then there are some verticals like travel that are so hungry for user acquisition that I can see them adopting AC much as they have PayPal and GC.   I don't think you'll see any of the top 100-200 retailers adopting it due to the competive threat, but I could be off base here, we'll be keeping a very close eye on that.

Given the SMB/mid-tier likely sweet spot, I think Amazon will need to sweeten the pot some and offer better fees as well as some ability to get in front of those 81m active buyers.  Maybe AC could be tied into the Product Ads system?

PayPal vs. AC - eBay vs. Amazon - a second battlefield opens up.

PPEC has several advantages over AC, but in that mid-tier and SMB space is going to be hand-to-hand combat.  Given that Paypal is the jewel in eBay's grown, if AC can knock 1-4% points off of of the Paypal merchant services (off-ebay biz), that could be a significant headwind for eBay corp.  It's also interesting to note that the two companies are now engaged in two battles vs. the one (ebay marketplace vs. Amzn 3P)

ChannelAdvisor and Amazon Checkout
We're taking a wait and see approach on AC.  We know that it won't be able to be used on eBay, thus it would be most applicable to our ecommerce customers. Right now we're spending cycles on a premium version of our store offering as well as (ironically) lots of work on the Amazon 3P system for the holiday selling season.  I'd love to hear what customers and non-customers think about AC and if they would want to adopt it or do the cons outweigh the pros?

Seeking Alpha disclosure: I am long eBay and Google

Amazon crushes! Classic Beat and Raise Q.

I'm still digesting, but Amazon looks to have had a killer 2Q.  Revenues came in at $4.06b vs. $3.995b and the bottom line was .37 vs. .26 on EPS.

Amazon bucked any ecommerce slowdown with 41% y/y growth in sales, that's 35% ex-FX.

Amazon took up their 2H08 estimates and FY08 estimates. The stock is up 5-10% in AH trading.

More details on 3P as we get them.

Amazon reports today!

Amazon reports Q2 today.

Wall St. Consensus is at $3.955b.  Everyone will be looking for any softness in Q2, 2H08, margins of course are always under the microscope at AMZN.  Finally, after eBay's slower GMV growth Q, everyone will be looking for any insights into Amazon's 3P business.  The only metric Amazon really reports is the % of units that are 3P (third party) and everyone will be watching that for any movement.

Ah Ha! Microsoft's cashback program is working - 15% uptick in June searches!

Back in June, I theorized that Microsoft maybe on to something with their live.com cashback program and said: "Personally, I'm anxiously awaiting the June search data from comscore. I think we'll see Microsoft Live search take a little share.".

Well comscore is out this week with their data and DRUM ROLLLL....

The results are bigger than I expected!

In a seasonally slower m/m environment you'll see that Microsoft increased queries 15% and for the first time in a long time that I can remember, increased share .7% which is pretty material in the world of search.  And you know what?  Not even that many consumers know about this new program.  If I'm Microsoft, I'd pour some gas on this little fire and do some more advertising, maybe crank out a print ad or TV ad and test that out.  Also, eBay is on sale right now for $31b.  If Microsoft starts to believe this ecommerce strategy is how to outflank Google, I think it's increasingly likely they look hard at eBay vs. Yahoo!.

Seeking Alpha disclosure: I am long eBay and Google

eBay issues more coupons

We're seeing a lot of buyers using a 10% off (up to $100) coupon with code:

CJULYFUN0810P.  It expires 7/29.

Remember you can utilize this with both the eBay cash back program AND the live.com cash back programs for as much as 35-40% off! 

Here's what the coupon looks like, if your account is authorized for it, you'll see it in your 'myebay' messages as well as your email associated with your eBay account.

eBay@$24 - Nibble nibble....

In my previous post where I detailed the Wall St. reaction to eBay's Q2, in the SeekingAlpha disclosure, I noted that I am now long eBay.

I've already received some questions on this and wanted to clarify. After reading all of the notes and looking at the data, I found Scott Devitt and Shawn Milne's view somewhat compelling.  I can see the argument that Motors softness is dragging down/masking many metrics and I do think the selling is overdone.  I also think many of the changes eBay is making are directionally good (many need tweaks of course).

The right changes?
Back in 2007, I outlined what I thought there are 3Fs that eBay needed to work on:

• Finding
• Fraud
• Fees

From my perspective, eBay is making good strides on Finding+Fees. I'd like to see much more around Fraud so I'm waiting on that one. Thus I agree with Devitt that eBay's probability of success is increasing (80% seems a little over-optimistic, but it's definitely heading over 50%).

I'm also intrigued (probably a subject for a longer post) to see if eBay can pull off bringing some really good branded sellers (along the lines of buy.com) to the site.  The positives (selection, buyer experience, etc.) of these sellers outweigh the negatives if eBay can manage to keep the smaller seller happy while slotting in some IR500 type retailers. 

Why nibble?
I decided to only invest about 33% of what I was originally thinking of doing here and average into a position and get more aggressive if it goes down to do a little DCA.  I'm particularly concerned that eBay could have another down-jag if Amazon reports their 3P business is accelerating (highly likely given eBay's GMV growth rate).  I pulled the trigger today at around $24 and if we see $23 or $23.50 over the next couple of weeks I'll probably round out the position.

Feels like 2002
I haven't been long eBay since 2002 so this is definitely a blast from the past for me, and it will be interesting to see how it plays out.

SeekingAlpha disclosure: Long Google and eBay

eBay Bears on parade - a review of analyst comments on eBay's Q2 results.

Rough day for eBay

As predicted after we heard about eBay's slowing of GMV growth, Wall St. has decided that eBay's turn around isn't going fast enough.  The stock is down 13-15% today trading towards $24, a level that the stock has flirted with, but hasn't trade around since 2003.

The primary area of concern is GMV growth. Ex-FX, GMV grew at 4% y/y - Both US and Intl were 4% which represents a material deceleration from Q1.  Ignoring all the positives of the Q, this one datapoint has sent the eBay bears on parade in a major way.

Some Bulls turn into Bears
A number of analystscame out today lowering their ratings and/or price targers:

• Goldman Sachs (James Mitchell)- For the first time in 10yrs that I've followed eBay, GS downgraded eBay from 'Attractive' to 'Neutral'.  James sums up the action: "The lesson from 2Q2008 GMV is eBay’s business is too large and complex to rapidly reinvigorate, especially in a challenging macro climate, causing consumers to trade down."  Goldman calcs a $30 value for eBay.
• Merrill Lynch (Justin Post) - Down to Neutral.  Justin was looking for more acceleration and it didn't pan out.  He also sees a $30 value.
• TWP (Christa Quarles) - Christa has an interesting view.  She says: "Essentially eBay has a “demo problem” in the type of buyer it attracts and shedding the “flea market” image is going to take more time than we originally anticipated."

Existing Bears get Grizzly

The market is focused on GS/ML/TWP changing their ratings off of 'buy', but one group that's always interesting to check in with is the existing bears.  In fact, you could argue that these guys got the call right and if their clients listened, avoided today's bloodbath in the stock. 

• Deutsche Bank (Jeetil Patel) - Jeetil has had a sell on eBay for as long as I can remember and has cited traffic trends, GMV growth, marketing costs and active user deterioration as reasons that the eBay model is broken.  Jeetil also closely follows Amazon's 3P business and reports that eBay's pain is Amazon's gain.  If ecommerce is growing at 15-20% and eBay's growing at 4%, where is that 11-16% going - Amazon? In today's note, JP re-iterates his sell and notes: "We think eBay faces structural issues that may lead to significant operating margin contraction, if the company needs to spend in ads/demand growth, lower seller fees and re-invest in R&D (interface). Note the strategy of increasing sellers fees and couponing has not improved underlying metrics, while recent initiatives may not be enough to carry the business in '08."  Jeetil put a $22 value on the stock - which is a street low.

• Cantor Fitzgerald (Derek Brown) - Derek has had a sell on eBay since initating coverage and re-itereated today, but at a $24 target.  His comments were interesting as they specifically highlight the possibility of increased competition (amazon paypal competitor): "In our view, key operating metrics continue to reveal that the company's core franchise is losing mindshare and marketshare at a rapid pace and that a much-hyped turnaround in it is still very much a work-in-progress. Moreover, we continue to believe that uncertainty and competition may increase for the company in 2H:08, with the prospect of further transitions in its business model, as well as the possibility of a PayPal-esque product introduction from Amazon.com."

Last of the Bulls have interesting take on the Q
An interesting group are those analysts that used yesterday's news to actually get MORE bullish in the face of all the negative sentiment. Long time readers will know that I'm a Scott Devitt fan and here he is with Shawn Milne (the e is silent) swimming upstream:

• Stifel Nicholas (Scott Devitt) - In a sea of bad news, SD found a surprising amount of items to be positive+excited about:
  • SD anchors his view on GMV growth.  In his view GMV growth ex-motors (key differentiator from others) was up 11-12% y/y.
  • Active users (ex-china) grew 6%
  • Marketing services revenue was up 38% and is now 11% of revs.
  • Paypal revenue accelerated (33%) due to off-eBay growth (57%)
  • Believes 80% probability that changes are working.
  • Scott concludes by putting a $33 bogie on the stock (which is $10 up from where we are right now).
• OPCO (Shawn Milne) - Shawn bravely has a $35 target on eBay (i'm guessing he must be street high?)  His arguments:
  • Similar to Devitt, he believes if you peel the onion on GMV growth, it actually increased in 3 largest markets.
  • Loves Paypal
  • Believes guidance is way-conservative and easily beatable
  • Loves valuation here

Analysts that are on the fence

Last, but not least there are many analysts that didn't take any action based on Q2, but had some interesting points that warrant highlighting:

• Citigroup (Mark Mahaney) - M+M (as I call him, not to be confused with Eminem) has a hold on eBay and kept it, but the language in his note was best described as 'grumpy'.  First, Mark referred to eBay's auction business as the 'Anchor around eBay's Growth'.  M+M views the GMV growth as very negative, but the overall results as a beat.  Thus he reiterates the hold, but says they are incrementally more negative.
• BofA (Brian Pitz) - Brian has a buy on the stock and lists out the Q results, many positive, many negative and essentially ends up with a wait and see.  Brian's price target is $38 (ok he must be street high - I'd be shocked if he doesn't bring this down with the stock around $24)
• Cowen (Jim Friedland) - Jim stays neutral and is really concerned with competitors: Amazon and GPS.
• UBS (Ben Schacter) - Very concerned over GMV Growth.  Kept neutral, reduced PT to $30
• Morgan Stanley (Mary Meeker) - Kept 'overview-v', put a $35 target on it.
• JP Morgan (Imran Kahn) - Imran keeps his overweight on eBay.  He views the marketplace biz results as mixed and PayPal/Skype as positive.  He's particularly positive on margins.
• Susquehanna (Marianne Wolk) - Marianne keeps her 'Positive' rating on the stock and is surprised that the results actually weren't worse: "Given the weak economy (which is driving demand for lower priced merchandise), eBay’s discounting and couponing and the shift to classifieds in the vehicle sector, it’s a wonder the business held up as well as it did."  She has a 'sum of the parts' analysis that suggests a $37/share value for the eBay portfolio. She suggests Skype is worth $2.6b which I'm not sure I buy. 

Conclusion
With the exception of Devitt and Milne, overwhelmingly the analysts are concerned about the GMV growth rates for the marketplace business.  That datapoint completely wipes out all of the other positives from the quarter. 

Seeking Alpha Disclosure: Long google and eBay (post coming on this shortly)

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.

Interesting slide/marketplace dynamics graphic from eBay's Q2 results

Below you see a snippet of the eBay Q2 results presentation.  It is an interesting visual way to show the different levers that exist in the eBay marketplace business.  This graphical representation of how listings/conversion rates/ASP intereact to drive GMV is a great way to understand how the eBay changes are moving the various needles and as an eBay seller an interesting way to think about your business.

eBay's Q2 results - first thoughts.

Exec Summary

While eBay beat the street on the Macro side (revs/EPS) and PayPal kept on chugging, the marketplace saw some deteriorating metrics that are going to be perceived as negative.

Guidance for Q3 is lighter than Wall St. was thinking so the speculation of a beat and raise Q didn't pan out.

eBay Macro financials

• Revenue - BEAT! - eBay came in at $2.2b vs.the street (consensus) of $2.17b.
• EPS - BEAT! EPS came in at: $.43 vs. the street at $.41.

eBay marketplace health metrics

• Revenue growth - NEG Q2 eBay core revenue grew at 13% y/y (feels like a slowdown as was in the 20's historically, i'll have to double check this.)
• GMV growth - MISS Q2 GMV grew at 8% vs. Q1's 12%. It will take a while for IR to let Wall St. know about the FX contribution here, but my guess is it is 4%-ish so the growth rate of GMV ex-FX would be 4%.  Historically the US is 4-6% slower than international so we could have seen negative US GMV growth for the first time ever in Q2.  This will be a big area of concern on the call.
• Active users - Active users came in at 84.5m, up .6 from Q1 - so it's hanging in there, but not really accelerating like Wall St. would like to see.
• Listings -666.9m listings, 19% y/y growth (if listings were up 19% and GMV was up 4% ex-FX, then conversions went down 15% effectively, assuming ASP was constant).
• Interesting - Fixed price is now 43% of transactions

PayPal metrics

• PayPal Revenue - PLUS In Q2, PayPal revenue grew at 33%
• Transaction Processing Volume (TPV) - PLUS In Q2, TPV grew at 35% vs. Q1's 34% y/y so a little acceleration there.

Optics/body language

• Stock repurchase - eBay reported that it purchased 19m shares for $566m (slightly more than anticipated).

What to listen for on the call:

Link to call and presentation here.

Most importantly for the conference call is that intangible 'body language'.  Wall St's radar is particularly raised about these topics:

• Macroeconomics - You'd have to live under a rock to not have heard about the financial crisis, record oil/gas, consumer confidence at a 30yr low, etc.  Wall St. is very concerned this will impact ecommerce and online advertising.  Some Wall St'ers are perplexed why there hasn't been a material 'falling off a cliff'.  I have some theories here we can get into in a future post. If eBay says something like 'consumer softness', you can expect some downside in the stock tomorrow.
• eBay Core - How's demand?  Why are pageviews down? Finding 2.0 update? Coupons working?  Microsoft rebate program working? How's BestMatch?  Any changes coming to the fee structure?  Any more diamond-tier sellers coming? Can/will that be material 2H08?  The car companies are all doing poorly, is this material in eBay Motors? Why is GMV growth slowing?!?

Seeking Alpha disclosure: I'm Long Google (who reports Thurs!)