eBay CEO John Donahoe said the company would step up investments in 2014, “particularly in PayPal” (eBay spent $800 million in cash to acquire Braintree last year), but he will have to do it while fending off advances by Carl Icahn, who wants to place two of his own people on the eBay Board of Directors. Icahn also wants eBay to spinoff its PayPal unit into a separate company, something Donahoe said he and the eBay Board agreed would not be the best way to maximize shareholder value.
eBay grew revenue 14% for the full year 2013, the company revealed on Wednesday. The fourth quarter was a tough, competitive holiday season in retail, Donahoe told investors in a post-earnings conference call. Consumers are changing the way they shop, “and in this dynamic environment, we feel good about our performance for the quarter.” By focusing on what it controlled, eBay saw a “strong finish to a challenging year.”
Donahoe said he believes strongly in the power of eBay’s portfolio to compete and lead in the new commerce environment and referred to four competitive battlegrounds: mobile, local, global and data.
Online sellers will be interested to learn that after rolling out Cassini in North America over the summer, eBay had rolled out Cassini worldwide (except Korea) by the end of 2013. It’s also live across all devices.
But Donahoe downplayed it, calling it “one of many buyer experience initiatives that help drive consumer acquisition and conversion over time. And I’ve said this before, I’ll say it again, there are no silver bullets in our Marketplace business. If anything, it has been proven over the last five or six years is no single platform initiative or product thing in and of itself created viral improvements.”
Cassini just enables eBay to test and learn and implement search changes more quickly than its previous search technology platform, he said.
During the call, he and his Chief Financial Officer also said eBay is increasing investments in Sales & Marketing, product experience and trust on eBay Marketplaces. It’s also investing in “omnichannel” initiatives, such as its same-day delivery service called eBay Now, and in-store pickup and ship-from-store.
eBay Grows Marketplaces 13% Worldwide, 14% in U.S.
Marketplaces gross merchandise volume (GMV) excluding vehicles grew 13% in both the fourth quarter and full year totaling $76.5 billion in 2013.
Its U.S. business grew 14% in the fourth quarter and 15% for the full year, generating $30.4 billion in GMV excluding vehicles for the year. That compares to the 10% growth rate (not including mobile transactions) that ecommerce experienced in the last 2 months of the quarter according to comScore.
eBay Marketplaces’ international business grew 12% in the quarter and for the full year, generating $46.1 billion in GMV excluding vehicles for the year.
Marketplaces revenue grew 12% in both the fourth quarter and the full year, totaling $8.3 billion in 2013.
Marketplaces gained 4.6 million active users in the quarter and ended the year with 128 million active users.
Fixed price GMV excluding vehicles grew 19% globally in the fourth quarter and represented 73% of total GMV.
eBay Handily Beats Its Mobile Target
Forty percent of all eBay Marketplaces GMV in the fourth quarter involved a mobile device touch point, resulting in $22 billion in mobile commerce volume for the full year.
Mobile users represented 40% of eBay Inc.’s 36 million new users and accounts in 2013,
PayPal processed $27 billion in mobile commerce volume in 2013.
PayPal Payment Volume Grows 25% Off eBay
PayPal revenue increased 19% in both the quarter and the full year, resulting in $6.6 billion in 2013.
PayPal’s net total payment volume (TPV – the value of payments it processed on users behalf) grew 25% in the quarter with 3 billion transactions generating $180 billion in net TPV for the full year. On-eBay payment volume grew 14% in both the quarter and for the full year, producing $54 billion in net TPV for the year.
eBay CFO Bob Swan said PayPal saw particularly strong growth in merchant services come from large merchants: 70% of the U.S. Internet Retailer 100 and 63% of the EU Internet Retailer 100 had integrated PayPal.
eBay Enterprise (GSI Commerce): Net Revenue Grows 3%
eBay Enterprise (formerly called GSI Commerce) has nine clients live on its new technology platform, and interestingly, eBay Marketplaces has 33 Enterprise accounts live on its platform.
The unit saw 11% growth in merchandise sales of its retail customers in the fourth quarter to $1.8 billion, while net revenue was down 2% year over year.
eBay Enterprise grew merchandise sales 14% for the full year 2013 to $4.2 billion, while net revenue was up only 3% for the full year 2013.
Wall Street analysts on eBay’s conference call had few questions about eBay Enterprises or its anemic growth, and the recent loss of its president was not mentioned during the call.
A Call for PayPal Spinoff
Once called a corporate raider, now known as an activist investor, Carl Icahnsubmitted a non-binding proposal for eBay to spin off PayPal into a separate company, eBay revealed in its quarterly earnings release. Here’s part of its statement about the proposal:
“eBay’s Board of Directors has concluded that the company and its shareholders are best served by the current strategic direction of the company and does not believe that breaking up the company is the best way to maximize shareholder value. As part of eBay Inc., PayPal is able to leverage the company’s technology capabilities, commerce platforms and relationships with retailers, brands and large merchants worldwide. Payment is part of commerce, and as part of eBay, PayPal drives commerce innovation in payments at global scale, creating value for consumers, merchants and shareholders.”
Donahoe called payments an essential part of commerce that takes the friction out of shopping. He also referred to eBay’s divestiture of Skype in 2009 as evidence that the Board considered such strategies on an ongoing basis.
Some may believe based on past history that Icahn wants to separate the companies and make each of them more attractive to potential buyers.
Bloomberg interviewed Icahn, who called his proposal to the eBay Board a “no-brainer.”
When asked by the Bloomberg reporter what he thought PayPal would go for, Icahn replied that he was speaking of a spin-off. He said there’s no reason eBay and PayPal should be together at this point, and believes the management teams should be separate – the health of the companies would be better, he said. “If there’s an acquisition, so be it, which is not bad either if it’s the right time for an acquisition.”
In the mid-2000’s, Icahn had advocated for Time Warner to spin off AOL. Interestingly, he had cited a 2005 Goldman Sachs report in making his argument that said eBay would be a good partner to provide incremental benefits to AOL
Why eBay Wants to Stay Together
In business school, Strategy 101 teaches students about the four classifications of products or business units in a growth-rate / market-share matrix created by Boston Consulting Group. In eBay’s portfolio, eBay Marketplaces is the cash cow (mature businesses with high market share but low growth), and it hopes to make eBay Enterprises and PayPal stars.
Management students are taught they should not invest in their companies’ cash cows, but use the cow’s steady revenue to invest in creating stars.
PayPal is eBay’s fastest growing business (though it has a lower take rate). eBay provides PayPal with new users with a zero acquisition cost; and PayPal needs eBay to fund Bill Me Later’s loan receivables portfolio.
PayPal also needs eBay Enterprise to get large merchants and retailers to adopt PayPal: “Enterprise clients are increasingly adopting technology from across the eBay portfolio: PayPal has 97% coverage with growing utilization of Bill Me Later,” the company said.
But eBay also needs PayPal – to help it manage risk. Donahoe revealed that eBay Marketplaces’ second largest market, Germany, is growing slower than the market, which he blamed on trust issues. eBay offers a money back guarantee, but only on transactions paid for with PayPal. Since many buyers don’t use PayPal in Germany, it leads to a trust issue. eBay had tried to make PayPal mandatory, see this blog post for more background on eBay Germany’s use of PayPal.
This example actually demonstrates how eBay shifts the risk to the seller. eBay can recover funds from sellers’ PayPal accounts – that also makes it easier to give buyers the benefit of the doubt in cases where disputes arise.
If you’d like to comment on eBay earnings, visit eBay Releases Fourth Quarter 2013 Earnings.
If you’d like to comment on the Carl Icahn proposal, visit, Should eBay Spin Off PayPal?