eBay Beats Street, Gets a Grip on Turnaround Strategy

Profits dropped at eBay last quarter, but the online marketplace still delivered a solid earnings report for Q2 that beat analysts’ expectations. eBay’s results provide a welcome boost to the tech sector,whose performance has been all over the map this earnings cycle. They also validate the direction CEO John Donahoe has been taking the company: away from its small-garage-sale roots and toward large-scale sellers and buyers.

eBay’s net income for the quarter was US$357.1 million, or 28 cents a share — with earningsclocking in at 39 cents a share, 5 cents more than the 34-cent analyst estimate. That was a drop from the same period last year, when net income registered $460 million. Sales in Q2 were $2.02 billion; analysts had expected $1.94 billion.

There were no big surprises in the report other than those pleasant improvements over expectations, Frederic Ruffy, the senior options strategist at WhatsTrading.com, told the E-Commerce Times.

Even Skype — which is widely viewed as a poor acquisition choice for eBay — contributed $153.2 million in revenue, up 21 percent from a year ago, Ruffy noted. Skype added 37.9 million subscribers in the quarter.

The lack of negatives is probably the main reason for the positive reaction in the share price, Ruffy said. Shares had risen 5.4 percent by mid-morning Thursday.

Certainly, Wall Street’s thumbs-up is welcome to shareholders: eBay shares fell 10 percent during the first quarter and more than 60 percent in 2008 on concerns that deteriorating economic conditions andproblems in the financial world would result in sluggish online spending and slower revenue growth for the company, Ruffy noted.

eBay also reassured investors by offering in-line guidance for the next quarter, saying it expects to earn between 34 and 36 cents, he continued. “The consensus is 35 cents.”

The Big Picture

eBay’s solid earnings report aside, the company still needs to address larger issues if it wants to reposition itself, Peter Cohan of Peter Cohan & Associates, told the E-Commerce Times.

Donahoe’s measures have been a good start, he said, but the company needs to take other strategic measures to ensure its long-term success.

“For example, I can’t for the life of me figure out why they bought Skype,” Cohan remarked.

Meanwhile PayPal — which, unlike Skype, fits perfectly with eBay’s business model — has not beenfully exploited, he added.

There is also growing discontent among the site’s seller community.

eBay itself has acknowledged these shortcomings, noted Cohan. “They have a new CEO, and it looks as though they are trying to fix these problems.”

Recent Maneuvering

Indeed, eBay has made moves to reposition itself in recent weeks. It is making a $1.2 billion play for South Korea’s Gmarket, the country’s largest online marketplace. It has also indicated it will spin off Skype in a public offering next year.

Skype has successfully grown its user base since being acquired by eBay over three years ago — but it is equally clear the VoIP (voice over Internet protocol) service provider is not a synergistic match for an online auction house.

It’s also clear that eBay will be focusing on wringing more out of PayPal. Last month, CEO John Donahoe told Wall Street analysts that the online paymentunit offered the company its greatest potential for growth: It expects that business to double by 2011.

eBay also is planning to institute changes to its Marketplace business, Donahoe added.

1 Comment

  • Editor write

    eBay’s problems started before the U.S. economy went south, but the online auction house now appears to be finding its way out of its financial miasma. CEO John Donahoe has been steering eBay toward larger sellers, to the dismay of the mom-and-pop shops that started it all, and both earnings and revenue were better than expected in Q2.

    Erika,

    How is 18% decline in MARKETPLACE revenue from Q1 of one year ago coupled with a 27% decline in page views at MARKETPLACE and 9 million less monthly visitors going to MARKETPLACE compared to same time last year equate to John Donahoe doing a great job converting the site an ecletic mix of sellers of all businesses sizes to focusing exclusively on a very narrow niche of large volume commodity sellers?

    Just because Ebay beat analyst numbers by a few pennies a share doesnt mean that MARKETPLACE revenues is the reason why. Donahoe is killing MARKETPLACE whether you editors and analyst want to see it or not. If it werent for paypal and skype having a strong quarter, Ebay would be in SERIOUS SERIOUS TROUBLE.

    You folks on the outside just dont get it! With Amazon posting 24% revenue GAINS, how can 18% revenue losses at Ebay Marketplace be anything to be impressed about? It’s pretty sad Ebay’s P/E is lowest in industry, now gone 2 consecutive quarters posting major revenue declines, any editors like yourself still rationalize in your head that what Donahoe is doing at MARKETPLACE is somehow such a postive thing. The site is technically a mess, and has become a strong deterent for alot of buyers to even shop on ebay anymore. Currently Ebay US has approximately 80 million active users…of which according to Lorrie Norrington, 25 million of it’s user sell on ebay whether it be occasionally or full time.

    How is heavily favoring large scale businesses on ebay which make up a minute percentage of the entire community in terms of unique product offerings while disadvantaging 20 million mom and pops (most of whom are/were avid shoppers on the site) and quietly and gradually pushing all of us off the site smart business tactic? Especially if majority of those 20 million occasional sellers and mom and pops businesses were/are loyal shoppers and community advocates! Expect MARKETPLACE revenues to continue to decline as long as Donahoe and Norrington keep trying to be a second rate wanna-be Amazon.

    There is not such a surplus of online buyer traffic that ebay can afford to continue driving off buyers and sellers like it has done over the past 15 months, yet because paypal revenue is rising keeping ebay corp afloat, the press and analyst seem to disregard the facts that MARKPLACE GMV, user traffic, revenues and customer satisfaction (buyers and sellers) is deteriorating rapidly since ole J.D. took the helm.

    IMO, Donahoe should be focusing on their shopping.com site, building it’s brand recognition and working on improving that fixed price, large vendor site attacting more large scale businesses to do business on that site, rather than completely reconstruct marketplace which has built brand recogitions as being the biggest and best AUCTION SITE on the net, and ridding the site of all the counterfeit sellers and fraudsters that have always ruined and STILL continue to ruin the trust of the mainstream buyer community. The primary reason auction sales are declining at ebay is because Ebay has masterminded a new search engine that heavily favors multiple quantity,fixed priced listing, listings offering free shipping, and listings from large scale businesses, while intentionally excluding auctions, legitimate small businesses and any casual seller offering one of kind type items which has greatly reduced product select and customer choices. How is that a good thing? How is that fostering buyer satisfaction? How is favoring large scale manufacturers from china, hong kong and thailand who have been flooding ebay with cheap junk and counterfeits of all product types good for ebay in long run just because these companies have alot of inventory? How is catering to a small niche of large mega seller businesses that all of their own websites and quickly eroding buyer traffic a good thing for ebay sharholders? Quite frankly, analyst alway talk about how Amazon is ebay’s biggest competitor and threat. In reality, ebay’s biggest threat is the same large compnaies they favor so much. The big gun commodity item sellers on ebay like the buy.com, tigerdirect, eforcity, dell and others large scal companies have managed to erode a ton of mainstream buyers off ebay as they immediately begin marketing their own websites once the initial ebay transaction takes place. How is catering exclusively to large scale companies that all have their own AGENDA (buyer leads) such a great business model for ebay’s future? IMO, it’s just another major reason shareholders should be concerned about withering marketplace revenue as more and more ebay buyers continue to shop their favorite sellers website rather than hassle with the growing complexity of using ebay.

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