11/1/11 -> IMPORTANT NOTE: I made an inaccurate assumption in this post that eBay started including S+H (which they do for sellers, but evidently not for Wall St.) which I have detailed and corrected in this subsequent post. I'm leaving this post intact with this note as I reference it in the correction. Please read both as the second post clarifies the mistake and recalculates eBay's Q3 gmv growth based on the new data.
A couple of weeks ago, I covered eBay's Q3 results and pointed out that Jeetil Patel at Deutsche Bank pointed out that many of eBay's US y/y gains could be attributed to eBay's fee change and how they calculate GMV.
Since writing that, I've received a ton of questions from sellers and Wall St'ers. Sellers have argued that they think it was a pretty material change and many point out that it was a substantial fee increase for them. Wall St'ers have been arguing that the impact was either very small or very large.
Long-time readers will know that these types of 'inside baseball' aspects of e-commerce are where we thrive so I thought this would be an interesting topic to really roll up your sleeves and dig into.
In March 2011, eBay announced that starting July 6, 2011 (Start of Q3 2011) that they would start charging eBay FVF fees on not only the 'core' price of an item, but the 'core'+S+H. At the same time, eBay lowered the FVFs to balance out what would have been a fee increase. In this post, we're more interested in GMV and not fees so I'm only looking at the GMV impact.
For example, if we sold the same Item on August 1 2010 (before fee change) and August 1 2011, they would have different GMV if they charged S+H.
August 1 2010 - $75 item with $10 S+H = $75 in GMV
August 1 2011 - $75 item with $10 S+H = $85 in GMV
It's this change in the definition of GMV that Jeetil pointed out could be the source of eBay's y/y growth in GMV.
Calculating the impact from the fee change
Before we calculate the impact from this change, here are some facts that I dug up with their sources that are the foundation of what we need to know before we make the calculation.
- 2010 Q3 GMV was $4.9b in the US, ex-autos
- 2011 Q3 GMV was $5.6b in the US, ex-autos
- Y/Y GMV Growth was 14% or $688m
- 2010 Q3 % of items that had free shipping was 30%
- 2011 Q3 % items with free shipping 40%
So to figure out the impact from the GMV change, we need to figure out how much S+H there was in 2010 that wasn't in GMV to see how much of that $688m would be attributed to the GMV change.
If we assume a $75 ASP, then in Q3 2010 there were $4.9b/$75 = 65.5m items sold
30% of those items had free shipping - so we take them out. The fact that free shipping increased doesn't really matter because the fee structure still makes it a GMV increase on those 10% items because most sellers simply moved the S+H into core as there was no financial incentive to NOT do that (which begs the question,why hasn't everyone done that - a story for another day).
Therefore, of our 65.5m items, we had 70% with S+H which is 45.7m
Now a tricky part of this calculation is: "What is the average S+H paid by buyers when it is charged by sellers - excluding free shipping." Well, it just so happens that at ChannelAdvisor this is the type of data that we basically have at our fingertips and it turns out the answer (from 10's of millions of eBay transactions) is $12.46. This may seem high, but remember this includes everything (as does the fee change). Golf club sets, tables, power generators, jeans, expedited shipping, etc. Everything.
Given that datapoint, we have 45.7m * $12.46 = $570m
$570m is the approximate amount of S+H that was NOT part of GMV in the Q3 2010 calculation.
Therefore of the $668m increase in GMV, we can approximate that $570 of that was from the addition of S+H to the GMV calculation or: 668-570=100m
Putting it all together, it looks as if $570m of the increase was from the change in GMV and $100m was true 'organic' growth (e.g. more stuff was sold and not a change in GMV calculations) which equates to 2% organic growth in the USA.
While I definitely agree the fee change was the 'right thing to do' as it stops the mis-aligned incentive to charge high S+H, it does look as if eBay's US GMV was essentially flat vs. growing with e-commerce. Since the change went into effect in July 2011, we'll have three more quarters until we annualize the change, so you could argue that the change also guarantees eBay a ~13% (The ratio of $12 to $87 total cost) y/y increase from one simple change.
A couple of assumptions that could be off:
- $75 ASP - this is our data and is probably on the high side of overall eBay
- $12.46 S+H - While this is true for ChannelAdvisor's broad customer base, it could vary for all of eBay
Actually these probably counteract each other and you largely end up with the same range of an answer (e.g. a $50 ASP and $10 S+H is $686m) so this is actually conservative in that sense.
What do you think?
Hopefully this puts some real data around this GMV y/y topic and answers everyone's questions. I'd love to hear your thoughts in comments.