Wednesday, October 31, 2007
Online retail spending in the third quarter grew 23% over last year’s third quarter to $28.44 billion from $23.05 billion, comScore Inc. reports. In the first three quarters of the year, online sales grew 21% to $83.58 billion from $69.12 billion.
“Online retail spending continues to grow at rates in excess of 20% year-over-year, which suggests that the market is still far from maturity,” says Gian Fulgoni, chairman of comScore
Obviously online sales continue to grow and are far from mature. The comScore numbers do not include auctions, so an apples-to-apples comparison with eBay is not going to be very accurate but we can compare growth rate of ecommerce to auctions to see which of the two is the mature market and which is the young buck that’s still growing. (Obviously you know where I’m going with this but lets look at the numbers).
eBay is the largest auction business online and its US GMV grew 10% Y/Y in the 3rd quarter (3% of that growth came from StubHub which is a FP (fixed price) business). Some estimates put eBay’s GMV from FP and BIN in CORE at 35% so if we just look at where the growth in eBay’s business is coming from, it's not auctions. Meg Whitman recently said during the Q&A section of eBay 3rd Q earnings call; you're going to see a higher percentage of our GMV in fixed-price. I think it's the fastest-growing part of the market.
eCommerce in the US (excluding auctions) on the other hand grew 23% from a much larger base $23.05 billion than eBay’s $6.1 billion. Heck, Amazon’s Y/Y GMV, admittedly from a much smaller base, grew by 42% according to Amazon’s 3Q earnings call; In the North America segment, revenue grew 42% to $1.79 billion. This is the highest growth rate in seven years.
So it appears that ecommerce continues to grow unabated while eBay continues to just muddle through. If Fixed Price is the fastest-growing part of the market as Meg said then wouldn't you think that management would concentrate on that type of product rather than coming out with a "Shop Victoriously" campaign or "Windorphins"? Auctions have lost their mojo.
It is clear to me that eBay has bet on the wrong horse. Auctions are eBay’s mature business while Fixed Price is where their future growth will come from. Management needs to champion Fixed Price and Stores in CORE while managing the auction business as a mature business. There needs to be a complete shift in thinking.
It is not all doom and gloom. Half the battle with change is admitting that the old way doesn’t work any longer. Maybe there is a 12-step program for eBay management. If eBay will admit auctions are no longer the Holy Grail, eBay is uniquely suited to begin growing as fast as ecommerce. Most Sellers don’t want to leave eBay but they are being forced to look at multi-channel selling to save their businesses just help them sell product and they won't even complain about fees. Multi-channel selling will not go away, that train left the station a couple of years ago but if eBay embraces their sellers and changes their focus the future can be bright again.
In some ways they are already addressing some of these issues. The new “finding” should help eBay add Store items back to CORE without hurting the “buyer experience” (hopefully this is their intention) and the new semi-persistent BIN will help drive up ASP’s and conversions.
Auctions have their place but the growth is in Fixed Price.
Just my 5 cents!
Sunday, October 28, 2007
Very interesting read.
Here are some key quotes but please take the time to read the entire article because while I try to provide context with my comments it would be better to read the article in its entirety. My Comments are in bold.
In discussing the challenges eBay is facing.
EBay is responding with a whole new strategic gamble--one some company insiders say is its most ambitious ever. The mastermind is John Donahoe, 47, whom Whitman brought aboard three years ago and installed as president of eBay Marketplaces (and as her heir apparent). His bold stroke--what he calls "our number-one strategic priority"--is recasting the site to focus primarily on buyers, not sellers.
As obvious as this realignment might seem, it is a sea change for an outfit that long regarded sellers as its main customers; some 1.4 million vendors rely on the operation for their primary or secondary income.
This is truly a gamble because in many ways eBay has burned their bridges with sellers. I would guess that sellers would come back if the buyers are there but never again will eBay have their undying loyalty.
Too much Clutter!
From the beginning, the strategy was to amass an unrivaled array of goods that would attract buyers. It worked well. In fact, as Donahoe now admits, it worked too well. The site became bloated and unwieldy. At any given point, it features about 100 million items for sale, with nearly 7 million new listings every day. "EBay's abundance was one of its attractions," Donahoe says. "But if you type in 'BlackBerry' and get 23,000 search results, it's not that helpful." (His offhand math is not far off the mark: A search in September produced 3,911 phones and PDAs, and 17,771 accessories.)
I still don't know why this is a problem. Search for BlackBerry on Google and there are 59,900,000 results and Google just shows you the top 10 on the first page. Most eBay buyers just buy from the first page of results anyway. The difference is eBay listings end so each listing will appear in the prime real estate (first page)at the end of the listing giving each listing the same exposure.
In my view these changes are directly related to SIS (Stores in Search) in 2005 when eBay added store listings to regular store search. With this article eBay says why they rolled back SIS and it wasn't because of the buyer experience. It was because their auctions took a huge hit.
New CTO Matt Carey arrived in Dec of 2005
Carey inherited a catastrophe. Shortly after he arrived in San Jose in December 2005, the site's core listings, largely auctions, and those for its 600,000 individual stores were combined for the first time--a blunder no one now takes credit for. Previously when you typed in, say, "Sony PlayStation," the search engine combed through only the core listings. To see the other merchandise, you had to surf over to the eBay Stores site and do a separate search or browse the stores. The goal of combining the entries was to show a broader mix of inventory on a single search; the effect was to give more exposure to the store products. The new setup was rolled out with no customer testing.
Within weeks, nearly every measure of eBay's business was down. Bids. Return visits. The conversion rate, or percentage of listings sold. Average sales price.
In hindsight, it's hard to understand why no one at eBay foresaw what would happen. Because eBay charges less for store listings than core auction listings, once they all appeared in a single search, many sellers shifted their inventory to save on fees. Suddenly, store merchandise, which tends to be pricier, was crowding out the auctions--and the bargains. Auctions bottomed out at just 17% of total listings, yet they still accounted for 91% of sales.
The misstep triggered headlines, a falling stock price, and pointed questions from analysts. Whitman explained repeatedly that the marketplace was out of balance. In March 2006, eBay rolled back the program. Finally, in August the company used its only real lever: It raised fees for store listings.
At the time SIS was rolled back eBay said the reason was because the buyers experience was damaged. Most sellers saw an increase in their sales during SIS so have always felt "buyer experience" was a red herring. The real reason is in the quote above.
Please read the entire article, it is the most comprehensive piece I've read about the behind the scenes reasoning of eBay managers.
Friday, October 26, 2007
Wednesday, October 24, 2007
3P stands for third party sellers. They used to be called “eBay sellers” but oh how times have changed. 3P sellers are being credited for the resurgence in Amazon's share price as well as the company’s revenues and more importantly profit. More and more 3P sellers are looking for the exits in regards to eBay.
The marketplace dynamics are changing. eBay over-estimated their hold on sellers and Amazon was there to woo them. Now a strange phenomenon is taking place. The type of product many 3P sellers are selling on eBay is trending toward end of life, liquidation, etc. Many 3P sellers are now using eBay for capital recovery while the lion share of their product is being purchased on Amazon at a higher margin. The IT has moved and continues to move to Amazon from eBay.
Why are 3P sellers shifting their mix of product to Amazon?
- Amazon wants them there or at least acts like they do. Not all sellers are happy with Amazon but far more are upset with eBay. eBay management pushed sellers too hard and the result of that is showing itself in the migration. The problem is once the genie is out of the bottle its hard to get him back in. So eBay has to run promos to drive listings.
- Higher ASP’s: 3P sellers know the % they will pay Amazon on the backend and they can calculate the number in their pricing. Because of listing fees on eBay if conversion decreases marketing expenses can accelerate as a % of sales therefore affecting profit margins.
- Customer Service – The eBay buyer is plain and simply too much work. Customer service emails are 100 times more on eBay than on Amazon. eBay buyers want the lowest price yet they want Nordstrom’s service (last time I checked Nordstroms wasn’t considered a discounter) while Amazon customers want a fair price with Amazon service and reputation.
- Constant turmoil and business plan changes on eBay and minimal changes or business disruptions on Amazon.
- Amazon is a retailer (wow, so are 3P sellers) and eBay is a marketplace promoter that has a history of soaking its clients.
These are just a few of the reasons 3P sellers are migrating over to Amazon and as they open up new categories 3P sales will continue to be the main driver behind Amazon’s growth and profits. Imagine an Amazon where 60% of their business is 3P and they benefit from the profit margins that business brings allowing them to fine-tune their own retail operations.
Tuesday, October 23, 2007
Sunday, October 21, 2007
Unfortunately, I am not an eBay insider and have no access to data, organizational structure etc. so, unlike Mr. Garlinghouse I can only observe the business and suggest solutions that may or may not be feasible. I won’t be making any far reaching suggestions on head count, corporate re-organization, spin-offs, or suggestions regarding what to do with Skype. In fact I often get a headache over my right eye just trying to decipher corporate financial statements and what I call eBay’s “voodoo accounting”. What I care passionately about is online sellers, many of these sellers have become close friends and I’ve been introduced to 1000’s more through my blog, Squidoo, and eBay’s message boards. These are real people who want their shot at the American dream and up until recently felt that eBay would help them achieve that goal.
I’ve been told (by a good friend and current eBay employee) that I tend to write reactive posts about eBay rather than constructive posts and I would have to agree. I generally look at recent news, company announcements, earnings reports and industry news to see what I can “pick on”. So after hearing eBay’s 3rd quarter earnings report I decided that I would make some suggestions and after the “Windorphins” kicked in I came up with the following:
(I will only be dealing with eBay’s Marketplace business, which is struggling so mightily. eBay Marketplaces are the main “power” in the “power of three” and the business segment that resonates most with investors and the public and though I will concentrate most on the US market, these suggestions will help the entire Global Marketplace.)
In Mr. Garlinghouse’s memo he outlined his plan beginning with this message:
“I don't pretend there is only one path forward available to us. However, at a minimum, I want to be part of the solution and thus have outlined a plan here that I believe can work. It is my strong belief that we need to act very quickly or risk going further down a slippery slope, The plan here is not perfect; it is, however, FAR better than no action at all.”
As I tried to come up with my own opening statement, I kept coming back to his. He said everything that I wanted to say and as well as I could have said it.
I have three key points to my plan to reinvigorate the eBay Marketplace business. I have often made fun of eBay’s catchy little term “Windorphins” but in reality eBay’s Marketplace business needs a monster size shot of Windorphins to get moving in the right direction. These suggestions may seem radical and some of my regular readers may suggest I seek professional help but here they are:
1. Acknowledge that Auctions have a Shelf Life!
2. eBay Should Become for Shopping what Google is for Search!
3. Spin off eBay Stores/Shops as a Separate Platform!
1. Acknowledge that Auctions Have a Shelf Life
a) Auctions are still viable but should no longer be the focus of the company. There is a reason that Amazon, Yahoo, Overstock and others have curtailed or shuttered their Auction businesses and eBay continues to see limited growth -- it is called a ceiling. I experienced it in my business and failed to adjust. eBay US and Germany are at the ceiling now and the UK and the rest of the world will soon follow.
Management needs to change the identity of eBay from an Auction company to an ecommerce company. Meg herself said “Our objective is to follow the user. This is a marketplace, and we want to do what the users want to do; what the sellers want to sell, and what the buyers want to buy.” Source 3rd Quarter 07 Conference call transcript.
b) Nothing will change until management considers Auctions to be just a slice of the ecommerce pie not the whole pie and once they've done that a whole new world will open up to them, there is a lot of pie left to eat.
eBay’s share price doesn’t struggle to get any traction because the company isn’t valuable, its because ecommerce is leaving them behind. Management needs to take off the blinders and think outside the Auction box.
2. Become for Shopping what Google is for Search!
a) Google is very simple. Users come to Google to find information and Google monetizes that activity by selling advertising. Google’s product search is poor so there is a huge opportunity here. eBay needs to become the defacto standard for Product search. They are currently building their own “finding” engine and selling sponsored search ads. Don’t stop with just the Auction marketplace, expand it to encompass all of ecommerce. Sellers are not going to like this approach unless they feel they can take part in it. (See item number 3)
b) Sellers just want to sell their product and do not mind fees when the value received is equal or greater than the amount paid. “Find IT on eBay?” will take on a whole new meaning when everybody uses eBay to find product. (No more of these Shop Victoriously ads) Let sellers sell and own their customers. eBay should facilitate the introductions and monetize the activity. They are already using sponsored search and shopping.com, stop playing around and go for the big game.
This is an enormous task but eBay is uniquely suited to accomplish it. With this approach they retain margin control in every segment of their business and open up additional revenue sources. Sellers are happy, users are happy and investors are happy. That is a “Power of Three” everyone would like to see.
3. Spin off eBay Stores/Shops as a separate Platform!
a) eBay currently has 520,000 eBay stores/shops worldwide, by far the largest store platform in the world but because stores do not generate the profit margin that CORE does they’ve been put on the back burner much the same as Half.com, Rent.com etc. When management doesn’t see the ROI they milk the asset instead of looking for ways to grow it. Sometimes common sense needs to be added to the ROI calculation.
b) There are over 19 million small businesses in the US and millions more around the world. EBay is uniquely positioned to grow their stores/shops business exponentially if they spin it off into its own platform with a shopping cart and search engine and facilitate multi-channel selling for its sellers.
c) Store/Shops should be the hub from which sellers list product on eBay, Half.com, Shopping.com, Kijiji, Amazon etc. eBay should be in the business of helping its customers (sellers) reach buyers and therefore maintain margin control over each segment of the business. While generating additional revenue from listing tools, customer service tools, etc.
None of these ideas can be realized over night and certainly some acquisitions would seem prudent to speed up the process. eBay management needs to change the way they view their Marketplace business and take the reigns of ecommerce 2.0 before Google figures it out.
Some additional thoughts:
I believe that if eBay moves in the direction I’ve outlined above they can embark on a completely new growth cycle. Google doesn’t worry about feedback and seller rankings they just put users in front of sellers/advertisers eBay can do the same thing.
I haven’t suggested any details because that is for the professionals to decide but it is evident to me that EBay needs to throw off the shackles of the past and forge a new ecommerce future. Sure this will cost money to accomplish and investors might complain in the short-term but what would they rather have, a stock that trades in the 30’s or one that has unlimited upside?
That’s Just my 5 cents!
Friday, October 19, 2007
After looking at this further, I do need to clarify some things. My chief focus is on eBay's US Marketplace business and I always view things from the perspective of the seller. Currently 51% of GMV comes from eBay International and that business as a whole seems pretty healthy but the problems facing the US marketplace, if not corrected, will make their way into the International Marketplace as well, as we've already seen in Germany. So, in my mind if they fix the problems in the Marketplace business in the US, the company as a whole will once again thrive.
According to Deutsche Bank analyst Jeetil Patel US GMV for Q3 was 6.7bn and essentially flat from the previous quarter and grew a modest 10% Y/Y (7% w/o Stubhub) these numbers in Q3 of 07, included a full quarter of eBay Express, which was officially launched in Sept of 06'. This quarter also included a 30 day seller promotion that increased listings in Core by roughly 2 million a day which should have moved the GMV needle higher and with the value of the dollar at historic lows increased International sales on the .com site could account for a large portion of that 7% increase.
So what do I suggest? I've been told that I am quick to post about the problems with eBay but rarely, if ever, post any solutions. I will be changing all of that come Monday. I’m am currently working on a post on how eBay can re-invigorate the US marketplace business; consider it my own “Peanut Butter Manifesto” for eBay. Sure, I am just a blogger who shut his eBay business down when I saw the writing on the wall but I’ve been observing eBay since 1999 and the solution is pretty obvious to me.
The fact that Amazon continues to grow at the rate of ecommerce and ecommerce as a whole, though slowing, is still growing at a better than a 20% clip should make it very obvious that their is room for eBay to grow much more than they are. So check out the blog on Monday for my “Shop Victoriously Manifesto” or maybe I should call it my "Windorphin Manifesto" that sounds a little cooler.
Thursday, October 18, 2007
The other thing is we want to see what happens when we take a price decrease of this magnitude. What is the listings elasticity? What is the conversion rate? What is the nature of what we do here? I think the learning over the last 12 months, let me speak for myself personally, is we have a number of different levers to pull. We've got product levers, we've got marketing levers, we've got customer support and trust and safety levers and we have a pricing lever that we have not ever really decreased price. It is possible that by decreasing price, we actually increase the revenues and vibrancy of this market in such a way that this price decrease is more than self-liquidating.
Now, I don't know that that's going to happen. But we were very much in favor of saying let's see what happens when we take a pretty significant sustained decrease in insertion fee in our largest market. Let's see what happens there. It may well be better for sellers, and interestingly there, better for buyers. We may end up with a win-win. But we will see, and we will report back in the first quarter. Source: the transcript of the 3rd quarter earnings call from Simpley Alpha
So here is the ad again, now visualize Meg as the Quarterback, investors in the stands, and sellers as the players etc. eBay better hope the seller catches the vase.
Wednesday, October 17, 2007
- Registered Users increased by 6.6 million users from the 2nd Quarter to the 3rd Quarter of 07' but Active users actually declined by 300, 000, for what appears to be the first time in company history. Active users are defined as users who have bid, bought or listed an item on the site in the previous 12 months. Is this a sign of a healthy marketplace business?
- eBay Stores reached a high of 649,000 stores/shops worldwide in the second quarter of o7' but dropped more than 20% in the 3rd Quarter to 520,000 that is also a 9% drop Y/Y. This is not store listings mind you this is actual store closings. A 20% drop in store closings from one quarter to the next should send shockwaves through the financial community. eBay Stores are not for casual sellers. Storeowners are committed to the site for at least 30 days with each item listed. To see a drop of 20% from one quarter to the next should send off alarms. Where are these 129,000 sellers going? Update: As some of my readers have pointed out and Ina Steiner posted today, eBay is not including the China Stores numbers. Ina reports that US Stores held steady from Quarter to Quarter so the decline was in International stores. I have no idea how many were from China.
- GMV growth in 2007 is flat and it appears the only thing keeping eBay from seeing a GMV decline is the stellar growth of StubHub. If you exclude the GMV from StubHub you will see the true state of the eBay Marketplace business. StubHub was a great acquisition but its success is masking even greater problems within eBay Marketplaces (in the US).
Core listings are down 3% Y/Y, this after eBay raised fees in stores last August to re-balance the marketplace. Instead what we've seen is a decline in CORE listings as well as a huge number of store closings.
- Sellers are leaving eBay in droves (at least 129,000 of those 300,000 active users who disengaged were sellers) and management is able to mask the exodus with benefits from FX (foreign exchange), one time tax breaks, increases in Non-GMV revenue and stellar results from StubHub. Sure the company as a whole is doing well but when you start to peel away the layers of the US Marketplace numbers the CORE smells rotten.
I'm just a blogger asking these questions. Why aren’t investors asking these same questions? How long will eBay be able to mask the decline of the Marketplace business? This is very serious and speaks to why there seems to be a disconnect between what sellers are seeing in their own operations and what eBay is telling investors.
Just my 5 Cents! What am I missing here?
This promotion should increase CORE listings substantially (hopefully eBay's advertising campaign will bring in enough buyers). IMO Sellers should be cautious in re-evaluating their listing plans. If it didn't sell in CORE prior to this promotion it probably still won't sell. Use this opportunity to save money on your current listings rather than go crazy listing items you have little hope of selling.
Here is the eBay press release on the 3rd Quarter numbers. And here is the PDF file on the 3rd Quarter numbers
eBay Inc. Announces Third Quarter 2007 Financial Results Wednesday October 17, 4:15 pm ET
SAN JOSE, Calif.--(BUSINESS WIRE)--eBay Inc. (Nasdaq:EBAY - News; http://www.ebay.com/) reported financial results for its third quarter ended September 30, 2007.
eBay reported record consolidated Q3-07 net revenues of $1.89 billion, representing a year-over-year growth rate of 30%. GAAP operating loss was $938 million in Q3-07, representing (50%) of net revenues, compared to GAAP operating income of $339 million in Q3-06. GAAP net loss in Q3-07 was $936 million, or $0.69 loss per diluted share. Both the GAAP operating loss and GAAP net loss were the result of the previously announced goodwill impairment charge related to eBay's acquisition of Skype.
Non-GAAP operating income was $593 million, representing a year-over-year increase of 28% and 31% of net revenues. Non-GAAP net income was $564 million, or $0.41 earnings per diluted share, representing a year-over-year increase of 53%.
The company purchased approximately 14.8 million shares of its common stock at a total cost of approximately $500 million during the quarter out of its authorized stock repurchase program of up to $2 billion by January 2009.
"During the quarter we made significant progress against our business unit strategies which resulted in record net revenues of $1.89 billion, a 30% year-over-year increase," said eBay President and CEO, Meg Whitman. "eBay International, PayPal Merchant Services, StubHub, classifieds and our advertising businesses all performed above our expectations."
Q3 Business Unit Discussion
Overall, eBay's Marketplaces business had a strong quarter, with strong top-line growth and profitability. The company continues to make significant investments aimed at its core business as well as growing its newer businesses.
Marketplaces net revenues totaled a record $1.32 billion in Q3-07, representing a year-over-year growth rate of 26%. eBay's users posted a total of 556 million listings in Q3-07 representing a year-over-year decrease of 5%. These listings generated Gross Merchandise Volume (GMV) of $14.40 billion in Q3-07, representing a year-over-year increase of 14%.
PayPal posted another excellent quarter of Total Payment Volume (TPV) and revenue growth, primarily driven by its Merchant Services business, with acceleration in both.
PayPal net revenues totaled a record $470 million in Q3-07, representing a year-over-year growth rate of 35%. Global TPV was $12.22 billion in Q3-07, representing a year-over-year increase of 34%. PayPal Merchant Services contributed $5.38 billion globally to the $12.22 billion in global TPV in Q3-07, representing a year-over-year increase of 61%.
Skype delivered a third consecutive quarter of segment profitability, excluding the goodwill impairment charge of $1.39 billion. Geographically, all three major regions, Europe, North America and Asia exhibited robust revenue growth.
Skype net revenues totaled a record $98 million in Q3-07, representing a year-over-year growth rate of 96%. Skype had 246 million registered user accounts at the end of Q3-07, representing a year-over-year increase of 81%.
Other selected financial results
Operating Margin -- GAAP operating margin was (50%) in Q3-07, compared to 23% in Q3-06 due to the goodwill impairment charge of $1.39 billion. Non-GAAP operating margin decreased to 31.4% in Q3-07 from 32.1% in Q3-06. The decrease in non-GAAP operating margin is primarily the result of faster growth from our lower margin businesses, primarily PayPal and Skype, mostly offset by productivity gains.
Taxes -- The GAAP effective tax rate for Q3-07 was (4%), compared to 26% for Q3-06 and 23% in Q2-07. The non-GAAP effective tax rate in Q3-07 was 10%, which was a decrease from 27% for Q3-06 and 25% in Q2-07 primarily due to a tax benefit from a ruling issued by a tax authority related to prior periods resulting in a favorable impact of 8 percentage points and the remaining decrease was due to changes in the estimated geographic mix of the company's taxable income for the year.
Cash Flows -- GAAP operating cash flows increased to $629 million in Q3-07. Free cash flow increased to $510 million in Q3-07.
Cash, Cash Equivalents, and Investments -- The company's cash, cash equivalents, and investments totaled $4.44 billion at the end of Q3-07.
"Our third quarter results reflect strong revenue growth, even stronger non-GAAP earnings growth, and excellent free cash flow. With strong financial performance in each of the three quarters of the year, we approach the remainder of the year focused on the execution of our business plan and confident in our ability to deliver strong full-year revenue and earnings growth," said Bob Swan, Chief Financial Officer, eBay Inc.
Fourth Quarter 2007 -- eBay expects consolidated net revenues for Q4-07 to be in the range of $2.100 billion to $2.150 billion. Non-GAAP earnings per diluted share for Q4-07 are expected to be in the range of $0.39 to $0.41. These amounts assume a US dollar to Euro exchange rate of $1.38.
Full Year 2007 -- eBay now expects consolidated net revenues for 2007 to be in the range of $7.600 billion to $7.650 billion. Non-GAAP operating margin for 2007 is expected to be approximately 33%. Non-GAAP earnings per diluted share for 2007 are now expected to be in the range of $1.47 to $1.49. These amounts assume a Q4-07 US dollar to Euro exchange rate of $1.35, and actual rates through the first three quarters of 2007.
Quarterly Conference Call
eBay will host a conference call to discuss third quarter results at 2 p.m. Pacific Time today. A live webcast of the conference call, together with a slide presentation that includes supplemental financial information and reconciliations of certain non-GAAP measures to their nearest comparable GAAP measures, can be accessed through the company's Investor Relations website at http://investor.ebay.com/. In addition, an archive of the webcast will be accessible through the same link.
I will post my 5 cents on these results after I hear the Conference call.
Tuesday, October 16, 2007
- Strong Q Expected. We expect Amazon to report a better than expected quarter due to strong eCommerce trends, strong sales from Harry Potter, higher third-party unit sales, and improving incremental margins. As such, we are increasing our 3Q revenue estimate from $3.130 billion to $3.170 billion, pro forma operating income increases from $148 million (4.7% margin) to $157 million (4.9% margin), and GAAP EPS increases from $0.17 to $0.18. Our estimates are towards the high end of company guidance on revenue and operating income.
- Accelerating Revenue Growth & Improving Margins. Our revenue estimate represents an acceleration of revenue growth for the quarter as Amazon continues to benefit from several factors including: 1) the continual shift of retail to the Internet; 2) free shipping and lower prices which are driving unit sales; 3) expansion of categories; 4) expansion of the 3rd-party business to the international markets; and 5) residual sales from drawing users to the site for video and song premiers from various musical artists, and for the digital services. These factors are driving what could be the second consecutive year of revenue growth acceleration for Amazon. The strong revenue growth along with the improving operating margins aided by the deceleration in tech opex and higher third party mix, have resulted in a share price for Amazon that has more than doubled year-to-date.
Three key takeaways for me:
- higher third-party unit sales
- expansion of categories
- expansion of the 3rd-party business to the international markets
Amazon has found the Holy Grail of online shopping Third-Party Sellers and they are expanding categories and opportunities to reach out to this large and valuable group. Amazon is no longer just a media seller, they are a growing shopping marketplace because of the breadth of product that 3rd Party sellers bring to the site.
The Canadian Press is reporting:
Internet broadcaster JumpTV (TSX:JTV) has appointed former EBay Canada general manager Jordan Banks as its new chief executive in a bid to begin growing revenues from the sports content licensed to the Toronto company.
JumpTV said Monday that Banks, a former legal executive with the National Hockey League Players' Association, will take over Nov. 12.
"What (the CEO appointment) allows me to do at Jump is take all my learnings and experience from my global sports experience as well as what it took to build EBay from pretty much a nascent business in this country to one that has well over five million users that are doing over $1 billion in activity a year," Banks told a conference call after stock markets closed Monday.
Monday, October 15, 2007
Look for big numbers from PayPal and eBay's non-GMV businesses as the marketplace business continues to lag.
Tuesday, October 09, 2007
"eBay have just announced big changes to fees in the Toys and Photography categories. Insertion fees are down, FVFs are up, and Gallery is now free of charge. The new pricing will run 23rd October and 31st December 2007 inclusive.
As Doug McCallum said last week, the changes are intended to bring fees more closely in line with seller success: more of the fee structure is now paid only if your item sells. With many sellers really struggling with sell-through rates, this was obviously intended to keep the site full of listings in these two high-profile categories in the run up to Christmas."
This is the UK version of the Gallery test conducted by .com in Sept. If the results are successful you should start to see this type of change across each category. I've been saying for years that eBay needs to have a category-by-category fee schedule. This blanket fee structure puts many categories at a disadvantage.
I applaud this move and wonder when the US site will launch something similar. Look for some kind of promotional test on the US site as we move closer to the peak-shopping season.
- eBay wants to own the entire transaction, which means they want the roughly 2% that these large service providers like CA get for their services. With the possibility of rolling back fees or at least capping them for now in their main marketplace business, eBay is looking for growth elsewhere.
- They already own the low end of the listing business with the SYI (Sell Your Item) Form, Turbo Lister, Blackthorne, Seller Manager, etc. Now that ChannelAdvisor owns MarketWorks, if eBay were to buy the company they would have a high percentage of the mid-size to large seller business as well.
- They already own a small stake in ChannelAdvisor, some peg it as high as 15% but that is a simple investment, they do not have controlling interest in the company and in fact they do not even have a board seat. At least with Craig's List they have a board seat.
- The AfterBuy purchase makes more sense if you consider it one step in a strategy to own the listing process. ChannelAdvisor is growing internationally in markets like the UK, Germany and Australia. AfterBuy is a major competitor of ChannelAdvisor in Germany. Is it possible that CA has spurned eBay's advances before and eBay upped the ante by buying a competitor? This would be a very similar strategy to what they've done with Craigslist here in the states with the introduction of Kijiji.
- AfterBuy is heavily involved in multi-channel selling in much the same way as CA. eBay, IMO, wants to be the shopping engine for the world's ecommerce. With a CA purchase they would own SearchAdvisor, Shopping Advisor and additional Marketplace listing tools. Of course an eBay purchase of CA might cause some friction with Amazon and Overstock but AfterBuy is heavily involved in Amazon listings so that doesn't appear to be a concern on eBay's part.
- ChannelAdvisor falls under what I call the PayPal dilemma. It is a service that a high percentage of top eBay sellers use that eBay has no control of. eBay management likes control. At this point eBay's ownership of CA only pays off when CA goes public or is sold. Like PayPal, I'm sure there have been discussions or even offers for CA and as CA gets ready to go public the price just keeps going up.
- CA's purchase of Marketworks consolidates the market segment enough to make an acquisition a no-brainer. The value of the company continues to rise.
- Investors in CA are in this for the money, unlike Craig Newmark and his Craigslist investors. If the price is right CA will sell. To this point, my guess is that the price has not been right.
- ChannelAdvisor is a great company with solid management and would be a much better fit for eBay than Skype or StumbleUpon and it won't cost eBay over $2 billion but it will cost them much more than StumbleUpon.
- An eBay purchase of CA would let eBay control Scot Wingo, there would be no more wild outlandish speculations on his blog. (That was just for you Scot.)
All of this is my opinion, based on observation and just a smidge of inside knowledge on how CA works. I think it would be a wise move on eBay’s part and they better do it sooner rather than later if they don’t want the price to keep going up.
Just my 5 cents!~
Monday, October 08, 2007
The eBay Shop Victoriously campaign was developed at BBDO, New York, by:
Chief Creative Officers David Lubars and Bill Bruce
Executive Creative Director Greg Hahn
Senior Creative Director Mike Smith
Creative Directors/copywriters Scott Kaplan and Tom Kraemer
Creative Director/art director James Clunie
Agency Producer Ed Zazzera
Music Producer Loren Parkins
Now, I am already on record as saying I didn't like the ads and that I felt this couldn't have been the best idea they came up with but ultimately eBay makes the decisions on these things so they must have liked it.
Just thought you might like to know who was behind the campaign. BTW, anyone have any idea how the campaign is working out? There certainly hasn’t been much buzz.
Sunday, October 07, 2007
What is the Red Door Campaign? Simply this is a SELLER initiative to educate Ebay buyers that Ebay stores officially exists on the Ebay site. Millions of store items are available for sale but buyers don't know we exist. This needs to change NOW. Only if we band together to work and publicize this fact are we going to make a change for the better. Ebay stores are now being stocked for the holiday season and this is the perfect time to publicize the fact that we exist. Let's make a positive change on this site. The Red Door Campaigns asks you to add a logo wherever you think it will publicize Ebay Stores most. Your core listings, all store listings, a store promo box, Me Page or anywhere else you can think or wish to place it. We need to educate buyers that stores exist. We need to teach them how to find us, and we need to take control of this process ourselves. sandrarn83 (2809 )
Apparently eBay is allowing this campaign to move forward through the holiday season:
Hello everyone, First of all, we applaud sandram83 for her efforts and energy around The Red Door Campaign. We believe this is a very positive way to market eBay Stores, and to educate buyers about what's behind the red door. We are VERY happy to announce the green light for this campaign! For clarity, here are some guidelines:1) For now, this will be allowed during the holiday season (until the end of this year). 2) Trust & Safety and Customer Support have been notified, so your listings shouldn't be taken down. We can't guarantee this won't happen, but we'll be available to resolve issues if they come up.3) Animated gifs are okay, but the animation should stop after 6 seconds. 4) Having the "Red Door Campaign" graphic link to your own Store is fine, as well as having the following text link going to Stores search. 5) Please let us know when you've finalized the graphic and text. Thanks everyone for your input and patience! Way to go, Sandra! From an eBay Pink on the discussion thread
IMO, stores are the future of eBay; not Auctions. This is a small effort but deserves some attention from the press and other blogs. eBay Store Sellers pay eBay lots of money each month for exposure, they shouldn't have to come up with their own campaign to make that exposure happen.
Why not visit an eBay Store this holiday season!!
Just my 5 Cents
One thing (among many things) that stood out to me was the survey results for the following:
Attitudes about eBay
We asked respondents if they think eBay is safer today for bidders and buyers than it was 1 year ago; 22 percent said yes, 53 percent said no, and 25 percent said they didn't know.
This year for the first time we asked respondents to rate eBay on how well they communicate with users; 1.6 percent said "Excellent": 13.3 percent said "Good"; 22.7 percent said "Average"; 19.5% said "Bad": and 43 percent said "Poor."
43 percent of respondents said that eBay is poor when it comes to communication. eBay is lucky they never created a feedback rating system for their own customer service -- a suspension would be in order.
The company has recently introduced a novel advertising approach: Advertisers can sign up to have a particular Web page "served" into the process of "stumbling." Meaning, users who are looking for a topic and click a video to view will be shown a web page that matches the demographic and interests of the "stumbler."
Garrett explains that there are few of these pages served -- just about one in twenty "stumbles" find an inserted advertiser Web page. We assume that the page loads for a limited time and then leads to the requested video.
Saturday, October 06, 2007
I would love to see a SquidBid page for GrapevineHill, InflatableMadness, GothamCityOnline among others. Sellers need to reach out and find customers where they hangout and Squidoo gets tons of traffic. Here is an example of a SquidBid page from eBay Seller FreakNoodles.
Seth Godin does a much better job of explaining SquidBids then I would so here is a link to his blog post.
Combining SquidBids with the Red Door Store campaign that some store sellers have started might give eBay sellers some promotional juice.
Friday, October 05, 2007
"And those three lessons, she implied, explain why she, as boss of eBay, the world's largest online auctioneer, was right to buy an internet-telephone company called Skype for an astonishingly high price in 2005"
Please read the article, as it details what these three lessons were and how she applied them to the Skype purchase. The author concluded his post with this:
"Ms Whitman also mentioned a fourth lesson during her talk at Stanford. Her main job as boss, she said, is to put “the right person in the right job at the right time”. She emphasized the word “time”, since a manager who was right a few years ago may no longer be today. It is a lesson her own bosses, on eBay's board, will doubtless soon be reviewing."
I recently wrote a post on the 10 Reasons Why Meg Whitman will Leave eBay by Q3 '08. I didn't include a Skype write-down and the possibility the board may lose faith in her so add those to the list.
Thursday, October 04, 2007
Since I'm a vain guy, I always type in my name in the search engines to see if my content is showing up. I type in Randy Smythe and click on the little search assist tab under the search bar and this is what showed up as suggestions. It even had glacierbaydvd still. Very cool! If you are an online seller, type in your store name or website name and see what pops up.
Check it out when you get a chance.
It’s a great read. My take in a nutshell: Stick with making deals in your core business in other words don't try and become a Telco when you are really an online marketplace business and don't make a bet on a new business on the hunch that you can integrate it into your operations. PayPal already worked with eBay, which made sense to buy it. Skype wasn’t being used on eBay so it must have been arrogance or a wild bet to think it would integrate well with eBay.
Pay close attention to the profile on Cisco as a model for sold acquisition strategy:
"To put such failures in perspective, it's helpful to understand what makes a good deal work. Companies with solid track records in M&A, such as Internet-equipment maker Cisco Systems (CSCO), tend to buy on a regular basis. They have methodical processes for selecting targets and integrating businesses postdeal. And they don't buy companies to prop up earnings or to enter dramatically new lines of business.
"We don't favor large, transformational deals," says Ned Hooper, senior vice-president of corporate business development at Cisco (BusinessWeek.com, 4/9/07). "We think M&A works best when it is part of a regular and stable business process. The best deals tend to bolster existing lines of business, or open new lines of business in adjacent markets. And we don't do deals to boost near-term earnings. We do deals to acquire promising new technology and to capture market transitions to open up new areas of growth." It may not hurt that buyers such as Cisco tend to work on their own, without much outside influence from investment bankers. Hooper runs Cisco's M&A group as part of its overall business development unit, vetting ideas for acquisitions with his team. "
How long before eBay makes an attempt to acquire CA? Is it likely? I don't know I'm still trying to figure out why they are getting into the auction management business. If Bay management believes they need to own that part of the transaction than CA would certainly be a prime target for acquisition. This will be interesting to watch.
Who knows, maybe then they could stop Scot Wingo from blogging.
Wednesday, October 03, 2007
Here is an excerpt: "We are committed to helping you as Store sellers capitalize on the power of building loyalty so that customers want to revisit your Store again and again--and share their satisfied buying experiences. We're opening this discussion to encourage your interest and hear your ideas on how we can leverage eBay Stores as the platform for driving repeat buying. Is it a tool, a feature, an enhancement to an existing product or tool? What would help you as sellers effectively target, market, and sell to repeat buyers?"
Read some of the comments from Storeowners and you will see that in order to get return buyers you have to have someone buy in the first place. The fee to value ratio in stores is upside down. Storeowners are being charged a premium price for less than premium service or exposure. I applaud the Stores Team for reaching out but until senior management realizes that Stores are the future of eBay not Core this is all wasted effort.
Tuesday, October 02, 2007
Skype was one of several bad acquisitions by eBay management, mostly because they didn't do enough due diligence to determine that eBay sellers didn't want the service. Once they were unable to integrate the service into the everyday life of sellers on eBay it became increasingly more difficult to monetize the service. Skype is doing well in markets where telephone calls are still expensive (Asia and Europe) but not in the US and that challenge is not going away.
At this point eBay management is better off selling Skype all together. Perhaps yesterday’s announcement is the first move in that direction.
Ina Steiner posted an eBay Acquisition Scorecard on her Auctionbytes blog this morning and it is evident the company has had way more misses than hits.
With more than $3 billion in cash and a $3 billion credit line, what is this management team going to do to instill confidence that their next acquisition won’t be a similar failure?
Are they going to be Gun-shy from here on out?
Monday, October 01, 2007
From Janus Friss - Co-founder of Skype.
Here is an excerpt from the blog:
Writing this it is probably out in the open that we have negotiated an early settlement of the earn out that was part of the deal when we sold Skype to Ebay in September 2005.
Skype has been an incredible adventure and I am proud to have been part of it. Looking back at 2003, at two guys running around with a crazy idea of building a global phone company purely on the Internet, moving from one rented apartment to another, still battling a major lawsuit from our Kazaa days, 2003 seems a long time ago. It is amazing to think that it is only four years!
So it is with a touch of nostalgia that we bring one chapter to a close (well almost – Niklas will continue as chairman of Skype for some time).
Earn-outs are inherently difficult creatures, but we are happy with the result of this one. We are approximately half way into the earn-out period and the settlement amounts to one-third of the total possible earn-out amount....
And this from an interview of Zennstrom at Thomas Crampton's Blog:
"Niklas Zennstrom, CEO and co-founder of Skype, today stepped down from the company ahead of the scheduled work-through period for its acquisition by eBay.
Shortly before the public announcement of his departure, Zennstrom agreed to give an exclusive English-language interview to this blog."
"He is an entrepreneur first and foremost and he wanted to spend more time on some of his new projects that he has been working on," eBay spokesman Hani Durzy said.
Skype has been a drag on the company and though I don’t think this will improve Skype’s outlook it should encourage investors. eBay Chief Strategy Officer Michael van Swaaij, will serve as acting CEO until a replacement is named. Russell Reynolds Associates has been retained to search for a new Skype CEO.
Ebay will also "take an impairment charge of about $1.43 billion in its third quarter, due in part to payments it made to some Skype shareholders as part of an earn-out agreement.
EBay said it paid 375 million euros ($530 million) to settle future obligations it had with some shareholders under an agreement that stemmed from its 2005 purchase of Skype.
EBay anticipates recording this amount and an additional 630 million euros ($900 million) as impairment charges in its third-quarter financial report.
Under the earn-out agreement, eBay was required to pay up to 1.2 billion Euro (about $1.7 billion) based on things like Skype's number of active users and sales and gross profit targets in 2008 and the first half of 2009." according to the Associated Press
This appears to be a deal to write down those earnouts and close out the payments for the Skype service.