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April 30, 2014

eBay's Q1 2014 Results - A Seller-Oriented Deep Dive

We've moved our blog! EbayStrategies.blogs.com will eventually be shut down, however the posts will live on. To access this blog post at its new location, click here.

Yesterday, April 29 2014, eBay announced their Q1 2014 results.  The results were largely mixed at a corporate level:

  • Overall Revenue - Beat expectations coming in at $4.3b, above the range and wall St. expectations.
  • Payments - PayPal did very well and is growing much faster than e-commerce.  We don't cover payments here, but a couple of tidbits are toward the bottom of the post.
  • Tickets - Management talked about 'competitive dynamics' and pricing, specifically calling out marketplaces and tickets/StubHub.  Some analysts have mentioned a price war with venues with Ticketmaster that's outside of the scope of what we cover.
  • Marketplaces - We'll dig into this one, but largely the MP segment under-performed growing at 11% vs. e-commerce's 15% growth rate.
  • $6b to play with - In a surprise move, eBay is moving $9b from offshore, paying $3b in taxes for a net $6b.  This has caused massive speculation around what the company may/may-not use the cash for.  I throw my top three guesses into the ring at the end.

 

Marketplace segment key metrics and analysis

Here is our dashboard of highlights

Ebay_q1__14_dashboard

There's a lot going on, here are the key things we're keeping an eye on:

  • GMV Growth - It was a bit disappointing that overall GMV grew 11%  with the US slowing down from 14% in Q4 and under-performing e-commerce growth (15%), expectations and our Q1 eBay SSS data (15.2). International GMV accelerated a bit from Q4's 10% showing a 11% y/y increase in Q1.  In the next section we dive into this GMV slowdown.
  • Sold Item Growth - At eBay (compared to Amazon), this metric 'matters' more because it is more relevant and tends to track GMV unless AOVs increase/decrease materially (which is why we watch it).  Sold items came in at 11.4%, a bit of an increase from Q4.
  • Active users - This was the bright spot for the marketplace segment.  Active users grew to 145m - a 14% y/y growth rate which means 4.7m new buyers came to the platform in Q1.  This is the best signal of the future we have and it was great to see this metric coming in with good momentum.  eBay's management talked about 6.5m total users coming from mobile (across all business units) so I imagine a big chunk of those 4.7m are coming from eBay's strategic mobile push.  Note: eBay changed this metric this Q and did it retroactively to be focused on active buyers and include 'off platform' businesses such as Gmarket, internetauctioncompany (IAC), etc.

 

GMV Growth slowdown

For sellers, the biggest headline from Q1 is the slowdown in US GMV.  Donahoe called out a couple of interesting tidbits on the call related around this:

  • Top Rated Sellers (TRS) was 48% of GMV (conversely non-TRS was 52%)
  • 53% of transactions featured free shipping (47% did not)
  • Cross-Border-Trade was 24% - this is a new high watermark, but it wasn't exactly clear if this includes PayPal or was a specific marketplace metric.
  • Fixed-price grew 20%
  • Auctions were a pain point, down 6%
  • Top-Rated sellers grew at 19% on a SSS basis according to eBay (they are search advantaged, so this isn't a surprise).
  • Competition -management did say that they are facing a fair amount of competition and specifically pricing.  This was mentioned in the context of stubhub and marketplaces, so it wasn't clear if there was anything specific to marketplaces here.

We get asked a lot why our SSS doesn't track eBay's results and one big reason is that our customers have for the most part moved off the auction format, so our data has a higher FP/Auction mix vs. eBay overall.  Also, we believe our customers have a strategic advantage due to our technology platform which allows them to grow faster and more efficiently.

Category details - stay tuned

One of the most popular features of our quarterly review of eBay results is the category data.  Unfortunately eBay has decided they are not going to publish this data going forward.  Last quarter's presentation will be the last time we are able to provide this data.  You may want to bookmark it here.

eBay GMV vs. Amazon GMV - The battle for the largest MP in the US

Usually as part of our Amazon coverage, we show the relative GMV for both eBay (ex-autos) and Amazon (ex-1P), but given the change of the order, we are including it here:

Q1_14_ebay_vs_amazon_3p

For Q1, eBay pulled ahead of Amazon's seasonally strong Q4 with $20.5b in GMV vs. Amazon's $19.1b.  What's interesting is the gap is the smallest it has been since I've been following this if you exclued the Q4 spikes.  Given eBay's ~12% growth rate vs. Amazon's ~23% growth rate, the lines appear set to cross in the near future, which would mean Amazon would be the largest US marketplace (of course this assumes steady growth rates, which is rarely the case but it's an interesting thought experiment).

I built a model for this that takes those growth rates out the next 18 months and the 'lines cross' in Q3 2014, here it is in the same chart: 

Q1_14_projected_ebay_vs_amazon

Alibaba's Tmall/Taobao had > $160b in GMV last year so it is at a run-rate that is about the size of eBay+Amazon, which gives it the title of the "Worlds largest marketplace".

You know what's cool? Six Billion

eBay's move of $6b lit up our phone with Wall St. folks asking who eBay could/should buy.  PayPal has a ton of momentum and management focus, so I'm going to go with a big payments move as my top two choices.  Here are the top three guesses:

  • Square - There have been reports that Square is for sale and I believe this would be a great addition to the PayPal platform.  Anecdotally, I never see the PayPal 'triangle' at merchants whereas Square is becoming ubiquitous. 
  • Stripe - eBay acquired Braintree, but many developers for mobile prefer Stripe.  If PayPal wants to totally dominate mobile payments, I believe they need to pick up Stripe before an Apple, Google, FB, Twitter pick it up.
  • Mercado Libre - If eBay wants to get serious about LATAM, they could buy the ~80% of MELI that they don't own already.  I think this is a long shot given the priority and opportunities in payments.  Another long-shot on this theme would be SnapDeal in India where eBay is also an investor.

Conclusion

The eBay marketplace is facing some headwinds due to increased competition and consumers continue to be voting with their wallets and choosing fixed-price vs. auctions.

If you are a seller, your action items from the Q are pretty clear:

  • A diversified strategy with many marketplaces and e-commerce channels is the best protection against any one channel having headwinds.
  • The 'quadrant' of fixed-price and TRS is where the growth is at eBay - the playing field is tilted heavily this way, so for most sellers it is worth the economic cost hit to be here.
  • Remember that eBay's new Defect Rate (one measure to rule them all) effectively goes into effect May 1.  In light of this Q's results, it is even more important to make sure your seller reputation is very solid and you maintain TRS status going into the rest of the year.  ChannelAdvisor customers -your account manager can work with  you  through this to help  make sure you are in great shape and ahead of the pack going into Q2.

Scot Wingo wrote this blog post. I am CEO of ChannelAdvisor.

 
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