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eBay President and CEO Meg Whitman said eBay listings are in better balance, and the actions they took to shift the balance back to "core" from "Store" had the desired effect. eBay's CEO was speaking to analysts an hour after releasing fourth-quarter 2006 earnings. The numbers beat analysts expectations, according to the financial press, with a 24 percent growth in fourth-quarter year-over-year net income. Much of the credit for eBay's good earnings news went to PayPal and a strong online holiday-shopping season.

It was last March that eBay rolled back its initiative to present fixed-price Store inventory into the main core platform, and in July that eBay announced fee increases in Store fees to try and "rebalance" the marketplace. Whitman said they are moving toward a healthier marketplace but have a way to go yet - one or two more quarters. eBay saw improved conversion rates and increasing Average Selling Prices in the fourth quarter.

Some highlights from the conference call:

• Whitman said eBay benefited from the demand for consumer electronics like the Nintendo Wii and PlayStation 3. Shoppers came on to look for such items, but may have moved on and bought something else while on the site.
• Whitman said of Google Checkout's effect on PayPal: when there's a new entrant in an industry, "the market leader is typically the beneficiary." She went on to say, "We have disproportionately benefited from news in this category, and we're delighted where we are."
• eBay CFO Bob Swan said he looks forward to making eBay Express, which is still small, a larger part of the business. When asked if eBay would pull eBay Express away from eBay, Whitman said not necessarily. "You can grow both."
• Whitman said eBay has classifieds sites in 400 cities around the world and will opportunistically expand, but has no plans to bring it to the U.S., stating eBay owns part of Craigslist.
• Whitman said early indications are that Skype integration on eBay continue to be positive and eBay will continue to make Skype Me buttons available. The buttons are available in 150 categories in 20 markets, and, "We'll continue to make slow and steady progress."
• Whitman said eBay was pleased with the space it put between Skype and other VoIP players, stating, "We've secured the lead."
• Swan said the ad revenue growth was primarily associated with Shopping.com in the fourth quarter, not due to eBay's agreement with Yahoo.
• Yahoo has been serving up text ads on eBay search results, and started serving graphic ads on a selected basis in the fourth quarter. Whitman said they have given the "green light" for Yahoo ads to appear in null search-results, and are also testing Yahoo ads in complementary search-results. She said the two companies have a constructive partnership to walk in a considered way, focused on the buyer experience and then seller experience.
• Whitman said Phillip Justus' mission is to accelerate the growth of auctions and focus on the user experience. (Justus was recently named head of the newly formed Auctions Group and reports to Bill Cobb, President of eBay Marketplaces North America.) The Auctions Group will focus on simplifying the eBay site, making it easier for shoppers to find items they want, and continuing to increase the fun and excitement of the auction business.

According to eBay's financial report, the number of active users on eBay Marketplaces grew 14 percent in the fourth quarter year-over-year, from 71.8 million to 81.8 million.

While the number of Store inventory listings had grown 178 percent in the second quarter of 2006 compared to the second quarter in 2005, the number of Store inventory listings grew 27 percent in the fourth quarter of 2006 compared to the fourth quarter of 2005.

The number of eBay Stores at quarter's end, for the past five quarters, are as follows:
Q4-05: 383,000
Q1-06: 486,000 (27% increase)
Q2-06: 541,000 (11% increase)
Q3-06: 573,000 (6% increase)
Q4-06: 593,000 (3% increase)

The percentage of eBay Stores hosted internationally went from 45% as of December 31, 2005, to 56% as of December 31, 2006.

Excerpts from eBay's Press Release:

Marketplaces
Our Marketplaces business had a very strong quarter, driven by good conversion rates and increasing average selling prices or ASPs, benefiting from a robust online holiday shopping season in our key markets. We also enjoyed healthy growth from our non-GMV driven businesses, including Shopping.com and our Classifieds portfolio.

Marketplaces net revenues totaled a record $1.2 billion in Q4-06, a growth rate of 24% over the $1.0 billion reported in Q4-05. The eBay platform confirmed registered user base at the end of Q4-06 totaled 222 million, representing a 23% increase over the 181 million registered users reported at the end of Q4-05.

eBay’s users generated a total of 610 million listings in Q4-06, 12% higher than the 546 million listings reported in Q4-05. These listings helped drive eBay Gross Merchandise Volume (GMV), the total value of all successfully closed items on the eBay trading platforms, to $14.4 billion in Q4-06, representing a 20% year-over-year increase from the $12.0 billion reported in Q4-05.

Payments
PayPal had an excellent fourth quarter. PayPal's on-eBay business benefited from strong eBay GMV growth and increased global penetration, while PayPal's Merchant Services business posted another quarter of remarkable growth, aided by further penetration of top online merchants around the world.

PayPal net revenues totaled $417 million in Q4-06, a growth rate of 37% over the $304 million reported in Q4-05. PayPal had 133 million total accounts at the end of Q4-06, a 38% increase from the 96 million reported in Q4-05. Those accounts helped drive record Total Payment Volume (TPV) of $11.0 billion in Q4-06, a 36% increase from the $8.1 billion reported in Q4-05.

PayPal Merchant Services contributed a record $3.9 billion to the $11.0 billion in global TPV in Q4-06, representing a 57% increase from the $2.5 billion reported in Q4-05.

Communications
Skype continued its impressive trajectory, posting remarkable user growth while making great strides in product innovation.

Skype net revenues totaled $66 million in Q4-06, a growth rate of 164% over the $25 million reported in Q4-05. The Q4-05 revenue amount represented the operations of Skype from the acquisition date of October 14, 2005 through the end of Q4-05.

Skype had 171 million registered users at the end of Q4-06, representing a 129% increase from the 75 million users at the end of Q4-05.

Business Outlook
First Quarter 2007 - eBay expects consolidated net revenues for Q1 2007 to be in the range of $1.670 billion to $1.720 billion. Non-GAAP earnings per diluted share for Q1 2007 are expected to be in the range of $0.28 to $0.30. These amounts assume a US dollar to Euro exchange rate of $1.25.

Full Year 2007 - eBay expects consolidated net revenues for 2007 to be in the range of $7.050 billion to $7.300 billion. Non-GAAP operating margin for 2007 is expected to be 33%. Non-GAAP earnings per diluted share for 2007 are expected to be in the range of $1.25 to $1.29. These amounts assume a US dollar to Euro exchange rate of $1.25.

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About the author:

Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com.

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