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Wed June 3 2009 10:20:31

Is eBay Turning the Corner?

By: Ina Steiner

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A Wall Street analyst upgraded eBay, writing in a research note that eBay's current stock price largely reflects the fair value of its Payment business but not the Marketplace business, which is now "showing many evidences of turnaround."

Sandeep Aggarwal, Senior Internet Research Analyst at Collins Stewart LLC, said based on the company's detailed proprietary study, that although eBay still has a long way to go, the signs he has seen so far are extremely encouraging.

We believe eBay has been - 1) improving its Search for the best match favoring merchants with higher DSR (avg. 4.82 in our study), 2) dramatically increasing the penetration for free shipping (at least 35% but 83% for best match) by offering incentives, 3) standing behind buyers using PayPal in case of any fraud/legitimate returns, and 4) increasing selection by implementing series of fee structure changes (higher # of listings vs. AMZN in our sample survey).

It's interesting to note that while eBay said during its Analyst Day in March that it was not a retailer and was focusing on Secondary Markets, Wall Street continues to compare eBay head-to-head with

Aggarwal seems especially impressed with eBay's actions with regard to free shipping. He believes that while the discounts eBay is offering PowerSellers who offer free shipping will affect margin in the second half of 2009, on a long term basis it will benefit eBay since it causes sellers to increase listing price, causing GMV to go up. (eBay takes a commission on the selling price but not on shipping costs.)

Aggarwal ran a proprietary study to evaluate the progress of the changes eBay has been implementing; the study was based on multiple sample tests to evaluate the progress for free shipping, search, and selection. About eBay's actions to encourage sellers to offer free shipping, he wrote:

Our findings, as of the beginning of June 2009, indicate that free shipping has seen good traction and acceptance among merchants. Overall, we believe, based on the results of our study, penetration of free shipping is at least in the mid 30%, though more likely mid 50% (esp. for listings actually converting well) and has shown a notable increase from the 30% in Q1-09 and low single digits in 2008, as per eBay management.

He also wrote he sees eBay making progress in Search:

We realize that search still has a long way to go (for example smaller things such as a misspelled word is not recognized by the engine and does not produce any response) but we also give credit to management for the efforts and the progress they have made in improving relevancy of results and promoting quality merchants.

And while he appears to recognize that eBay's definition of "increased selection" is too simplistic (in January eBay said number of new listings was evidence of greater selection), his test compared current keyword searches on eBay to Amazon instead of comparing current results on eBay to those on eBay before the changes. (See page 7 of the report, "Progress on Selection.") 

Aggarwal's report focused on exactly what eBay has been messaging to analysts, and it appears he believes eBay's arguments on why these changes to Trust & Safety, Search and Selection will turn eBay's Marketplace business around.

We believe that all these changes translate into higher listing conversions, GMV growth higher than listings growth, higher realized dollar value per listing for EBAY, and more satisfied buyers/sellers. We are increasing our est. and believe that Street will likely follow. EBAY now offers a visible path to growth acceleration (beyond just economic recovery) & margin expansion, in our view.

You can view the full report in this PDF file on the Collins Stewart website, where you can also find disclosure and disclaimer information.

Comments (92) | Permalink

Readers Comments

Is eBay Turning the Corner?   Is eBay Turning the Corner?

by: Just-an-Observation

Wed Jun 3 10:49:13 2009

In other words, eBay has succeeded in bringing in millions of listing from overs-seas garbage sellers, all the while pushing out our own.

The typical tactic of an over-bloated corporation outsourcing the American dream.

Is eBay Turning the Corner?   Is eBay Turning the Corner?

This user has validated their user name. by: Mercy the Mingless

Wed Jun 3 11:22:13 2009

Maybe eBay is cleaning house finally. I see they got rid of Jose Mallabo finally. His Twitter page, jmallabo234 and his linkedin page both show him as no longer employed by eBay. Guess they got tired of cleaning up after his messes.

Is eBay Turning the Corner?   Is eBay Turning the Corner?

by: DifferingPointofView

Wed Jun 3 11:29:53 2009

Perhaps Mr. Aggarwal could explain the significant drop in traffic on the eBay site? I note no mention of that. Not indictative of turning any corner.

Thus speaks yet another MBA type who has no understanding of the eBay marketplace and what's really happening there. He obviously has only a very superficial experience with using the site.

When traffic and sales drop as they have, and merchants are receive a dimishing portion of their pie, there is little reason to remain.

I hear increasing comments from people about the lack of inventory they are seeking on the site. If that continues, people will cease bothering to come search.

Mr. Aggarwal doesn't know what he's talking about.

Is eBay Turning the Corner?   Is eBay Turning the Corner?

by: Patricia

Wed Jun 3 11:35:08 2009

These analysts are not down in the trenches with the sellers.  They don't see and don't care about what is going on within the core.  Business is absolutely dismal for most which is why they are so adamant about building other venues.  I must admit, until all this happened with Ebay I never realized how little these wall street analysts knew about what they're talking about!

Is eBay Turning the Corner?   Is eBay Turning the Corner?

by: Just-an-Observation

Wed Jun 3 11:41:03 2009

Exactly DifferingPointofView!

Mr. Aggarwal doesn't care - it's not his money he's encouraging you to spend!

I wonder if it's dark inside eBay's pocket?

Is eBay Turning the Corner?   Is eBay Turning the Corner?

by: joe

Wed Jun 3 11:50:22 2009

Aggarwal is an entertaining NITWIT..

He doesn't have a clue...

Is eBay Turning the Corner?   Is eBay Turning the Corner?

by: Phil Thompson

Wed Jun 3 12:08:11 2009

Hello? Ebay is turning the corner alright, to a dead end street in the ghetto! Sandeep Aggarwal, I'm so sick of these Wall St people trying to beef up eBay when they have no clue! Sales and traffic are absolutely dead, and this is coming from someone who actually made good money "back in the day". Did you see all Sandeep's touchpoints about how great it is that eBay is converting sellers to offer free shipping because it increases final value fees, and helps Wall Streeters suck more blood out of us?
Anybody that offers free shipping should be slapped upside the head with a cast iron frying pan! Your buying into the propaganda, paying higher listing fees, higher final value fees, and being led by eBay down the path of bankruptcy, wake up! Do not believe the hype by these Wall Street pimps! What's even worse is that the eBay board reads these things & are probably giving each other high fives on how great of a job they are doing! What will eBay do when sellers finally figure out they are spending more in fees than they are making in profit? With how pitiful sales are, it is critical that Ebay needs to offer zero listing fees & get paid off only what sells, I'm tired of getting screwed on both ends! It is just not profitable to sell on eBay on a wide scale like the old days!

Is eBay Turning the Corner?   Is eBay Turning the Corner?

by: WB

Wed Jun 3 12:09:29 2009

Another analyst either being paid off by Ebay to state they are turning the corner or is incredibly ignorant and unware of the real Ebay and what it has done to destroy the businesses of hundreds if not thousands of small sellers.  If anyone believes anything this moron states they are just as dumb.

Is eBay Turning the Corner?   Is eBay Turning the Corner?

This user has validated their user name. by: Bill

Wed Jun 3 12:19:21 2009

many of you, including this site, are so bent on hate that you can't acknowledge the possibility of positive news regarding ebay. I've seen my sales go up and am excited about the news.

Is eBay Turning the Corner?   Is eBay Turning the Corner?

by: Foothill Web Design

Wed Jun 3 12:44:00 2009

eBay may be turning a corner but it is once again reinventing itself at the expense of current sellers. When I buy, especially something like a commodity, there are just too many options. So I go to search, filter by Buy It Now, then sort by lowest price + shipping, and there's my purchase. It's a long way from the good old days of sniping a nice collectible. Recently I chose a seller because she was closer to my location, but it turned out she was out of stock. So location isn't much of a factor anymore. Free shipping is an attention getter, and probably accounts for a lot of sales.

Is eBay Turning the Corner?   Is eBay Turning the Corner?

by: Patricia

Wed Jun 3 13:11:34 2009

I stopped using free shipping when I realized, 1) it didn't raise my sales, and 2) ebay was profiting from it.  If they really wanted us to offer free shipping they would have made it easier on us - instead they stood back and raked in the extra final value fees! They couldn't even bring themselves to gray out the shipping cost star!!!  Pure greed and arrogant ignorance.  Its also interesting to note that out of all these posts only one claims they are doing better.  If that ratio were applied to ebay on the whole - then the company is in REAL trouble and trying to hide it...which I happen to believe may be true.

Is eBay Turning the Corner?   Is eBay Turning the Corner?

by: john

Wed Jun 3 13:55:29 2009

Traffic is way down. End of story. Nothing else matters. Less traffic automatically means less sales for 99% of the other sellers.....and the 1% who do have higher sales as a result are just a little higher, certainly nothing to write home about.

When I am looking to buy on a site....I don't care about their policies, payments, etc. I care about traffic and traffic only. Ebay's traffic is declining, Amazon's is rising, end of story.

Wall St. has been WAY behind on Ebay the whole time.

Is eBay Turning the Corner?   Is eBay Turning the Corner?

by: On Lies and Secrets

Wed Jun 3 16:02:51 2009

I have not read the original report, so my initial response is based on the analyst's logic presented in the article above. I see a series of significant disconnects in the logic.

First, shipping is not ''free'' in an absolute sense.  Someone has to pay fot it; I don't know of any carrier who delivers tangible products at no cost to anyone.  The price of shipping **is** included somewhere in the price that the customer pays.  The customer pays for shipping, one way or another.  I think most consumers realize this fact and if they are cost sensentive, will buy the item with the lowest total purchase price whether it is billed as ''free shipping'' or not.  In a down economy, people necessarily are more discriminating about price and I think are more inclined to shop around for the best price.

The analysts has rightly noted that items with ''free shiiping'' result in higher revenue for the ebay corporation because the final value fee is higher on an item when shipping is included in the item price.  What the analyst didn't note is that higher ebay fees for sellers often means higher prices for buyers.  Increased fees increases the cost of doing business for a seller.  Increased seller costs are passed on to buyers eventually.  If the ebay corporation continues to extract more and more fees from sellers (no matter how they do it), they will eventually price goods sold on ebay out of the market altogether.  Buyers pay for increased ebay fees - sellers can only absorb so much. IMO, this is not a sustainable business strategy for the ebay corporation.  

Is eBay Turning the Corner?   Is eBay Turning the Corner?

by: Sara

Wed Jun 3 16:12:11 2009

When I go to buy I look for a good deal NOT traffic. Who the heck does that??

Is eBay Turning the Corner?   Is eBay Turning the Corner?

by: Phil

Wed Jun 3 17:19:00 2009

Sara, the comments about site traffic are from a sellers perspectives, obviously not from a buyer. Most buyers don't give a hoot about site traffic, but the sellers livelihood depends upon it!

Is eBay Turning the Corner?   Is eBay Turning the Corner?

by: marie

Wed Jun 3 17:50:01 2009

I am a seller since the good times, when I made big money.  My DSRs are 4.9-5.0-5.0-5.0  --  darn near perfect - doesn't make a hoot of a difference  in traffic flow for me - I actually drop in Best Match when my stats go up.  Sales, Watchers, Bidders are all tanked - where do they get these stats from?  I know there are rolling blackouts for me - I have a good window with traffic for maybe 4-5 days each month, then it dies - total pattern that has been repeating itself constantly the last 6 months.  What a game it has become.

Is eBay Turning the Corner?   Is eBay Turning the Corner?

by: fruity

Wed Jun 3 17:52:11 2009

yes, sure. by fumigating the smaller sellers and kicking them to the curve. the fact of the matter is, ebay only wants a certain level of used collectibles items, the rest of the focus is on the big retailers. ebay calls themselves retailers when it suits them. like for the interchange discounts they consider themselves a retailer.

EBay used us and we all know it. we're only good for their lobbying agenda so they can parade the SMALLEST of the SMALL business in front of congress whenever THEY want to hold back legislation

Is eBay Turning the Corner?   Is eBay Turning the Corner?

by: Just-an-Observation

Wed Jun 3 18:55:41 2009

The cost of doing business on eBay is very near what potential buyers can find at any local department store - especially WalMart.

Remember, eBay isn't about unique items and collectibles anymore, only overseas garbage from overseas garbage sellers.

When Uncle Sam gets his sticky fingers in the pot, Feebay will not be able to sustain it's struggling position in the  marketplace. A tax free purchase is a major incentive for people to make their purchases online. Once that ''bonus'' is gone, so too will the greedy corporations that thrive on eating all the pie.

Is eBay Turning the Corner?   Is eBay Turning the Corner?

by: A new Ebay Seller

Wed Jun 3 19:41:05 2009

Since December 2008, I have been a seller on Ebay.  I had bought many things there  and have been a buyer since 2000. Needless to say, my sales have been horrible and I have been going deeper into the red. At first I was optismistic and thought I just had to learn more about what I was doing.  I tried various ways of listing and offering my items for sale, but to no avail. Free shipping I also tried, and while I think it is terrific for a buyer, it is awful for the seller especially with the new increase in postal rates. I have also noticed that there are now Ebay sellers from other countries selling for much less than I can even get my inventory for. A seller here in the USA cannot compete with that.  As soon as I sell off my inventory, I shall be a ''Once Upon A Time Ebay Seller''.

Is eBay Turning the Corner?   Is eBay Turning the Corner?

by: Monster

Wed Jun 3 20:05:40 2009

The smoke and mirrors that has been eBay since they went public will one day become clear to all those left holding the bag.

eBay is, by it’s very nature, a bait and switch. eBay has no inventory, and have created a near zero communication/zero transparency platform to give the impression that they are the Seller. They have worked for all of 2008 to give Buyers the impression that they are buying directly FROM eBay.

Given the intelligence level of a populace that would destroy their own country via the ballot box, how easy do you think it will be for eBay to indoctrinate the “new” community of eBay Buyers into thinking they are buying from a retail site like Amazon or Wal-Mart?

The new eBay “community” will be unaware of what a great place eBay once was to find IT, and what a great community of INDIVIDUALS used to sell here. America and eBay are both becoming devoid of the “engine” that made them great.

If you have to get rid of 70% of a population/community to change a culture, maybe eBay has succeeded in that since beginning DONAHUE’S DISRUPTIVE INNOVATION DEATH MARCH. Perhaps that is the “turnaround” that Mr. Aggarwal is talking about.

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