Incredibly, eBay's top executives admitted they had expected the sales drop that the eBay Marketplace experienced in the first three months of 2019, saying it was caused by a significant reduction in marketing, primarily in North America.
And despite the decline in dollar sales for its sellers - even as many paid more for visibility - eBay itself experienced a 4% increase in revenue (on a foreign-currency neutral basis) thanks to seller fees.
Here's how sellers fared in the first quarter in the aggregate:
- US GMV (the value of items sold on its marketplace) dropped 6% in the first quarter, year-over-year.
- Total GMV was down 4% - a decline of 1% taking into account the impact of foreign exchange.
eBay CEO Devin Wenig explained to Wall Street analysts on Tuesday's earnings conference call that its own revenue growth was partly driven by Promoted Listings - sellers were "flocking" to Promoted Listings, he said.
"In Q1, we had more than $800,000 active sellers promote over 200 million listings. This helped drive over $65 million of revenue this quarter, up nearly a 110%."
While that's a win for eBay, it's the result of sellers having to compete more fiercely for sales, finding themselves having to sacrifice profit margin by paying for visibility through Promoted Listing ads.
Wenig said, "We entered the year with the intention to reduce low-ROI marketing spend while maintaining the focus on driving positive buyer growth with new product experiences and targeted marketing. In Q1, that's exactly what we did.
"We removed a significant amount of promotional spend that tended to subsidize higher priced items at low ROI. The impact of this change was lower GMV, driven by lower average price, but steady sold-item growth." (ROI is return on investment.)
(Presentation slides show eBay sold-item growth was again 0%, for the fourth consecutive quarter; steady indeed.)
Wenig and his colleague, Chief Financial Officer Scott Schenkel, did not get into the specifics of eBay's marketing strategy during the call with analysts, but one thing jumps out to eBay observers. Throughout 2018, eBay ran sitewide "flash sales," in effect paying shoppers to buy items on eBay. It abandoned that strategy in 2019.
Both Wenig and Schenkel characterized the change in marketing expenditure as a "significant reduction."
For sellers expecting change, brace yourself: Wenig said the "GMV to Revenue gap" would continue. In other words, eBay will make more money from sellers for each dollar of sales. Basic math means that will make eBay increasingly less profitable for sellers.
eBay didn't mention the new Good Til Cancelled (GTC) mandate, nor did it receive any questions about it during the call. It's not clear if the company had signaled to analysts the topic was off limits, or if analysts don't consider it material to eBay's financial performance.
eBay did raise the issue of Managed Payments. Wenig said he was "delighted" with eBay's progress in taking over payment processing and announced it is expanding the program to Germany
He also mentioned that eBay had begun the review of its portfolio as mandated by activist investors unhappy with eBay's performance.
Thankfully the talk of a "turnaround" at eBay finally seems to be put to bed, a holdover from former eBay CEO John Donahoe days. The new metaphor is "train tracks" that eBay has been "laying down."
A new catch-phrase is "aspect coverage." eBay had told sellers with the Early 2019 Seller Update, "You will be able to optimize your listings for product-based shopping by simply providing complete and accurate item specifics when you list," as opposed to having to match their product to eBay's catalog/
Here is Wenig's explanation to analysts:
"We said a couple of quarters ago that what we would do is effectively bifurcate the experience that new users who are getting more of the structured data product-based experience, and existing users were being landed more on the historical experience. That's what we've done. And one of the reasons we've been able to maintain healthy buyer growth is, with this significant reduction of marketing, is that we are seeing great conversion gains for new customers. That gives us a lot of confidence for the future.
"In the Core, we're also seeing the impact now that the evolution of structured data is making; this year we'll be very focused on aspect coverage, meaning knowing the product is important, but knowing the attributes of the product in many ways is even more important. And we'll be encouraging sellers to contribute a great degree of richness to their listings because we know that that richness improves our catalog and drives buyer conversion.
"So, I kind of hinted at that in my remarks, but you'll see a significant expansion of the coverage and quality of our catalog this year, and the early signs are very positive on conversion, so that's where we're going to focus.
"But for new users, we've been even more aggressive about product-based experiences, and that continues, and we're real happy with the results there."