eBay Earnings Release Not Entirely Good News

Last week, eBay announced first quarter 2009 revenue of $2.02 billion, a $171.6 million year-over-year decrease. While PayPal, Classifieds and Skype performed well, according to eBay, delivering year-over-year revenue growth, text and graphical advertising revenues were flat compared to Q1 2008. Marketplace revenues fell sharply. All told, eBay’s net income for the quarter ended March 31, 2009 reached $357.1 million or $0.28 per diluted share.

eBay sees strength for PayPal, expecting the online payment processor to more than double its revenue in the next few years. eBay also strengthened its core auction business by announcing plans to purchase one of Korea’s largest online marketplaces.

“We delivered solid results in the first quarter and moved aggressively to strengthen our portfolio for longer-term growth,” said eBay Inc. President and CEO John Donahoe. “With a macroeconomic environment that remains challenging, we are focused on operating discipline and strong execution of our three-year growth priorities in our core ecommerce and online payments businesses.”

But What About The Marketplace

eBay’s results were better than many analysts had expected. But not everyone was convinced that the greater-than-expected profit was all good news.

“eBay’s marketplace sales dropped 18 percent in the first quarter versus Amazon’s 18 percent increase, showing there’s more going on at eBay than a strong dollar and bad economy,” said Ina Steiner, editor and co-founder of AuctionBytes.com, an online magazine that monitors eBay and other auction sites. “eBay CEO John Donahoe refuses to take any responsibility for the poor performance, but eBay’s marketplace business is in turmoil and traffic is down, due in part to a constantly changing shopping experience. Mr. Donahoe is telling analysts and shareholders to wait three years as he shifts strategy yet again. Three years sounds like a lot to ask both of the shareholders and of the sellers who are directly impacted by the decline. I don’t expect either of these stakeholders to wait around for him to turn things around.”

“There are plenty of sellers who are exploiting the opportunities that eBay still offers,” said Steiner when asked what merchants needed to understand about eBay’s current situation. “The question for sellers is whether it’s worth the effort to figure out eBay’s constant changes, or invest their time and resources elsewhere. Even small sellers now know they should not use eBay as an exclusive channel—32 percent of Amazon.com’s unit sales came from third-party sellers, many cherry-picked directly from eBay. eBay isn’t going away, but it’s a very different venue on which to sell than just a few years ago, and it’s headed in a direction where soon, only the largest merchants will feel comfortable selling there.”

Marketplaces

The Marketplaces business unit, which consists of eBay, Shopping.com, StubHub, Kijiji and other ecommerce sites, recorded $1.22 billion in revenue, equating to an 18 percent year-over-year decline as Steiner mentioned. The revenue drop was attributable to the impact of the strengthening dollar and the decline of the core business in difficult macroeconomic conditions, the company said. Approximately 54 percent of Marketplaces revenue came from markets outside of the U.S. GMV (excluding vehicles) was $10.80 billion for the quarter, a decrease of 16 percent, compared to the first quarter of 2008. Online classifieds revenue actually increased 23 percent year-over-year, a strong indicator that classified and listing ads are growing in popularity, according to eBay.

Payment Processing Business

The Payments business unit reported a strong quarter with $643.0 million in revenue, an increase of 11 percent year-over-year. Net total payment volume (TPV) for the quarter was $15.86 billion, an increase of 10 percent. The revenue and net TPV growth was driven by continued momentum in PayPal Merchant Services and the contribution made by Bill Me Later, according to eBay.

Continued increases in PayPal penetration on eBay helped offset the negative impact of gross merchandise volume (GMV) on revenue and TPV. Active registered accounts reached 73.1 million, an increase of 22 percent year-over-year. The Payments business will continue to focus on the acquisition of new merchants, greater penetration into the Marketplaces business and the growth of Bill Me Later.

Communications

Skype contributed $153.2 million in revenue for the quarter, representing 21 percent year-over-year growth. Skype added 37.9 million new users during the quarter and ended the period with more than 443.2 million registered users. In addition to growing its user base, Skype is focused on product strategies to enhance customer engagement. But, interestingly, on April 14, 2009, eBay Inc. announced plans to separate Skype into an independent company during the first half of 2010, via an initial public offering.