Thursday, July 19, 2007

Why Can't eBay's Stock Gain Any Traction?

eBay, once again announces excellent earnings in its 2Q, 2007 Earnings Call and the stock still tanks. As of this writing the stock is down over 2%, while the market as a whole is up nicely.

What could be wrong? Management must be pulling their collective hair out wondering what they need to do to right the ship and get the stock going in the right direction. Especially since their compensation is so heavily dependent on stock options.

eBay Inc. is developing a nice portfolio of properties that are growing but the Core business is not. Imagine where the stock price would be if they weren't buying back millions of shares.

The market wants to see growth in eBay's Core business not just profit. In order to re-invigorate the CORE business they need to provide incentives to sellers. Right now, they are milking the cash cow instead of breeding it to create more cows (I'm not sure the analogy was that clear but I think you get my point).

Amazon's stock continues to perform well because they are growing. They still make a lot less profit than eBay does but their business is vibrant and growing and investors are rewarding them. eBay's Core business continues to struggle while management squeezes out as much profit as possible driving customers to Amazon.

Meg, stated in the conference "We also have a strong eBay Inc. portfolio with PayPal and Skype, two rapidly growing businesses that are very well positioned for the future. We also have the strongest senior management team that we have ever had at the company and we have talented, experienced employees that know how to get to the right strategies and also execute in an ever-changing environment in all of our businesses."

What happened to "The Power of Three"? It looks to me like they have two growing businesses, not three and one is an infant (Skype) that has a questionable future. I keep saying maybe they should change the name of the company to PayPal because unless things change soon PayPal will be the "New Core"

Why is Amazon growing very close to the pace of ecommerce, while eBay struggles to grow their GMV business? It's because they understand retail and eBay does not. While I agree this current management team is great at hedging their bets with Non-GMV acquisitions and growth, I don't believe they are the right team to grow the GMV business. Is that too harsh? Maybe they are the right team but need to change their focus from managing the downside to growing the upside.

I've said it before and I will say it again, they need to separate the Auction business from the Fixed Price business (eBay Classic and New eBay). Manage the Auction business which has matured and grow the Fixed Price business at the rate of ecommerce. Hard choices need to be made. Is this the management team to accomplish that? Sure this will cost money but investors will applaud the decision and so will sellers because they will see the ceiling raised.

Just my 5 Cents!


Anonymous said...

I think eBay Express is the new ebay, honestly.

The reason it hasnt gained traction is because ebay requires you to accept unconfirmed address payments from paypal.

Anyone who opts out of this is no longer eligible for ebay express.

Anyone in their right mind who accepts all unconfirmed payments is in for a treat!!

Sue said...

They should give you a job.

Randy Smythe said...

Express, could have been the New eBay but management mucked it up. Now, Express is "Dead man walking"

Sue, they don't like independent thinkers at eBay. They don't listen to me now, they certainly wouldn't if I worked for them.

trevor ginn said...

They can't separate the auctions from fixed price as it is the auctions which bring the traffic to eBay (where they might decided that they want a fixed price item after all)

Randy Smythe said...

Trevor, if they want to fix Auctions they have to separate them. They have to make them special again.

BIN and FP are 40% of the purchases in CORE and growing. You can still have a FP marketplace that has 7 day listings and promotes store items as well as a true Auction marketplace no BIN no FP. eBay Classic!

The choices they need to make are not simple ones but the GMV Marketplace business needs to be blown up and redesigned. That is evident from the news coming from the Earnings Call.

The choices they are making now are half measures at best. They are meant to milk the cash cow as long as they can so that the new Non-GMV businesses can grow and take the pressure off the GMV business. Hard choices need to be made. I believe the Market would respond very favorably to an aggressive move like this.

The problem is current management's careers and compensation depend on the short-term not the long-term, so they won't make the hard choices.

Express didn't fail because it was a bad idea. Express has failed so far, because of poor execution.

Sue said...

I completely disagree that it's the auctions that bring buyers to eBay. I think it's the combination of perceived bargain with breadth of goods. These days, that's just as much about BIN/SIF as auctions, if not more. Buyers have matured beyond auctions: they're no longer a novelty.

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