Thursday, March 12, 2009

eBay Analyst Day - Morning After

After a big party there is often a huge hangover. So, what are the analysts saying the morning after eBay's big PayPal coming out party?

Jeetil Patel - Deutsche Bank
"eBay hosted its analyst day yesterday, at which management provided details behind its financial goals for 2011. While filled with long-term optimism, we thought the analyst event lacked near-term reality with respect to the current deteriorating fundamentals. In light of no near-term (2009) guidance, anticipate acceleration in growth, competitive pressures and economic backdrop, we think it's difficult 
to put much credibility into the 3-year plan. We think investors should gauge eBay against near-term performance. We reiterate our SELL."
Justin Post - Bank of America/Merrill Lynch Research
Analyst Day overview - PayPal will do heavy lifting
EBay held an analyst day, introducing its new management team (70% of top executives are new or in new positions) and outlining its plans to turnaround its core while continuing to grow its PayPal and Skype businesses. Biggest positive: 2011 growth targets for PayPal ($4-5bn) and Skype ($1bn+), which even with flat Marketplace rev. would put total rev. at $11bn, well above Street at ~$9.0bn. Biggest negatives: No obvious fixes to marketplace share losses, and US net debt position limits ability to attract value investors with buybacks.
2011 outlook well above the Street
EBay expects to drive $10-12bn in '11 revenue vs street at $9.0bn (BAC-ML at $8.8bn) with $4-5bn from PayPal, $5-7bn from core, and $1bn+ from Skype. Implied operating income target is $2.3-3.9bn, above our $2.1bn estimate even at low end, and EPS at midpoint would be around $2.10, vs our $1.54.
Why we are lower than management's outlook
Guidance is based on a return to a more normal economic environment in 2010, with marketplace maintaining share in '10 and growing share in '11. With Amazon, Craigslist and Google growing users, we expect marketplace to remain under pressure, which could have a spillover effect on PayPal and advertising.
Maintain Underperform - share headwinds in '09
Upbeat presentation, but one message from the day was that eBay was still early in their turnaround and that things would get worse before they would get better.  We believe that the Market is putting companies, and especially turnarounds like eBay, in a "show me" box and we think other stocks are more likely to react positively to signs of an economic turnaround.
I will post additional Analyst notes as soon as I receive them.

Update: Here are three more from the Silicon Alley Insider Blog. "Analysts Barf All Over eBay (EBAY)"

Just my 15%


ms.pat said...

Great reporting Randy. I'm really enjoying this. Doesn't look like Ebay's dog and pony show fooled anyone above the age of reasoning :-) To me they only showed even more how woefully inadequate they are to be running Ebay.

nadine said...

Ditto, Randy. Looks like even the analysts who don't understand what's going on with eBay (that's most of them) understood that they were getting a presentation full of hand-waving with a lot more covering up of a bad situation than coming to grips with it.

Jeetil Patel, as usual, is way ahead of the pack.

2011 or Bust said...

JD buys himself a lot more time with this -- screw up eBay and then say "its not about eBay, its about Pay Pal guys!"

Cobb told me years ago that Pay Pal would eclipse eBay and all along I have spouted that the Diamond Seller Deals, etc. had more to do with getting major retailers to accept Pay Pal than anything else.

Very sobering. Funny that they eBay members had to twist arms to get eBay to buy Pay Pal and now eBay management's long term goal is to use eBay to get large retailers to use Pay Pal.

I wonder if any members regret pressing eBay to buy Pay Pal. And imagine the mess that eBay would be in without it.

Well I guess you have to be careful with what you wish for, huh?

nadine said...

Does JD buy himself more time with this? Most of analysts seemed distinctly underwhelmed. If the Q1 report is as bad as we expect it to be - and Amazon has another good quarter - and the stock tanks below $10 - all probable events - will JD still have time?

Randy Smythe said...


They've already given him the year, I think.

Everyone at the company, that I've talked to, says 2009 is going to be ugly, so I think the BOD is all ready resigned to that.

nadine said...

It sounds like the BoD does not have anybody better to put in place.

2009.5 or Bust said...

eBay gets lucky and has this meeting during the same week when there is a gernal Uptick in all trading markets...they beat the overall market by a couple points, but whatever....

I still think the bigger story is eBay's contract of adhesion and how they are going to leverage the smaller sellers to meet the endgame goal of making Pay Pal the standardized online payment solution.

Everything and everyone else that stands in the way of this is just "noise" to them. Everyone reading this blog and every seller needs to accept this and then move forward. Nothing is going to change for the better, so either abandon ship or steal someone else' life preserver because pretty soon you are going to have to wait for Buy, REI, Guess and all the others to get their service first before you get your Copy/Paste customer support email.

Know this, move forward and make as much as you can before it gets worse.

Tony P. said...

No, it won't work. The BAD network effect is now destined to follow paypal. This isn't the 'net of 2006.

Large retailers of 'overstock' and the piecemeal sellers of such goods already have their outlets, on and offline. They don't need paypal.

If they come to the free lunch provided by ebay, for ebay usage, they'll be no different than the diamond sellers. At best, paypal gets a taste, then the seller locks in their own payment method.

The best growth potential for paypal lies in their current merchant services. Since more sellers will leave ebay, and prolly use paypal on their own website, it's a cannibalistic growth.

He's trying to buy time. It may be politically-incorrect for me to use this term (i'm about to use), so I apologise in advance.

They're retards.

The stock analyst 'experts', ebay mgmt. and the BOD. Madoff and everything about that situation is proof of just how far BS can be spread, and gladly accepted.

nadine said...

Agreed. The main reasons for eBay to exist now, in today's net, starting from where it is now, is as an aggregator/marketer/mall for small businesses, and an advertising portal for large ones.

JD is still driving the small sellers off the site. The large sellers will drive his margins down towards zero because he needs them more than they need him.

As buyers and sellers continue to leave and selection decreases, the value of eBay to all its remaining customers will continue to decrease.

What has JD understood of all this? That the "more retail-like experience" we were promised has failed, so he must "disruptively innovate" some more. He will slip back into the also-ran status of the "Secondary Market" still clutching his attempt to imitate Amazon because the only thing he knows for certain is that buyers hate auctions.

Anybody else find it deeply ironic that several reporters saw the "Secondary Market" strategy and said, "Oh, eBay must be returning to its roots as a fleamarket?"

Just what JD tried to run away from! Returning to its roots would be a retreat for eBay, but would make more sense than returning to its roots while still spurning the original wildly successful business model for the sake of a cheap Building 19 or Big Lots clone.

JD is self-immured in a tower of bogus data, so the chance of his making any good decisions is effectively nil.

I find it hard to believe that the board just intends to sit through another 3 1/2 quarters of this decline and do nothing. This is worse than Yahoo!

p.s. to Tony P. Read your comments on Scot Wingo's posts on seekingalpha. Nearly spewed coffee all over my keyboard, I laughed so hard. Do you have a blog? You should.

Anonymous said...

something tells me you know a whole lot more than you are willing to share Randy.

Anonymous said...

Something tells me tht when Ebay talks of liquidation companies they arent refering to junk sellers like bargainland or warehouse 19. With literally 100s of well know major retailers closing stores all accrossed the country this past year, in addition to many major retailers filing chapter 13, I suspect there is many billions in assets needing to be liquidated that are not scratch and dent stuff, factory seconds, used, customer returns, remanufactured, shelf pulls etc....There is a massive ammount of inventory in the supply chain somewhere from all the major reetailers that closed some or all their stores....and I suspect behind the scenes, Ebay suits has made arangements with either the retailers themselves or their liquidator company to bring all that NEW merchandise on ebay.

I dont believe Ebay would continue to push 100,000s of sellers of all business sizes so quickly and purposefully...if Ebay dint have some seriously ultior motives behind all this, and I seriously doubt they would go to such extremes as they have, if the objective was to bring aboard a handful of giant liquidators offering mostly subpar merchandise.

nadine said...

Anon, you believe that eBay is capable of looking after their own interests. I say they've been doing a bad job of it so far, so why should I think they are wiser now? They are trying to micromanage a business that they don't understand.

Randy Smythe said...


I actually don't know anything for sure so it would all be speculation.

You can see that in 2011 the marketplace biz could actually be lower than it was in 2008 (they gave a huge range) So I don't think they have any big liquidators on tap.

They are thinking for of the Outlet model and eBay will be the Outlet venue for large retailers.

The liquidators are not built to sell things one off. They make money selling containers, so I can't imagine any of the real big guys out there selling on eBay directly.

Like I've said many times alread this year. I am so done with eBay. They are just going to milk the marketplace business for as long as it takes to make PayPal THE core business.

Merchants should only use eBay if it works in their business model. They should not be dependent on eBay anymore.

Randy Smythe said...


As long as JD and his team are running eBay, they will milk the cash cow called All of their efforts will be geared towards making PayPal the core business. That is why they have no problem throwing more advertising onto the platform and eventually adding listing just like they have listings. is now just a means to an end and they do not really intend to grow it.

Tony P. said...

I've seen this disbelief before, on the discussion boards. How can a large corporation, run by Harvard MBAs, possibly be run incompetently?

It's very easy, due to a modern phenomenon (mostly, the internet). It happens because the Execs didn't actually build the company, they simply rode an ever-increasing economic wave of profitability.

Take AOL. It took some work for Case to get AOL going, but then they just rode the wave. A few years later and the site was basically an Ad farm of pop-ups.

Then ISPs became prolific and cost competitive, and AOL went to the FREE business model. Ebay will prolly follow this model, which is what Randy describes.

From my POV, both of these companies would have been better served if they had nurtured their base. But that requires knowledge (on the Execs part) of actually knowing all-things about their base.

The Execs that actually help build their companies have more skin in the game and a deeper understanding of the overall game, itself.

Of course, there's also the additional factors of Monopoly, Absolute Power, Greed, Ego... small things like that. ;-)

Tony P. said...

(Nadine, thanks for the shoutout. No blog for me. I just ride the coattails of good folks like Randy) :-)

to continue..

The ignorant Execs then make changes to the business. The core produces profit (naturally!), so they think they had something to do with it.

Once in a while, the Execs really screwup the machine. They look for blame. Never in the mirror. They find blame. Users. Or software. Or maket timing. Usually, users or their items.

Believe it or not, ebay used to have a pretty good idea of where the Execs stood. Back in 2002 or so, Meg commented, "Even a monkey could drive this train”.

From that time comes the internal mantra: "Don't screw it up". Over time, the Execs that did have something to do with building the company, left. After having their advice ignored.

So in the end, you're left with the delusional feeling all smug and cock-sure. You can shout out things like: Billpoint, Butterfields & Butterfields, Skype (my fav) and they'll just shrug.

Or blame someone. No mirrors involved.

nadine said...

Randy, but what is the business model for Paypal if the eBay marketplace goes away? Medium to large sellers have merchant accounts and don't need it, though they might offer it as a convenience to their buyers. It's only the small sellers who actually need it. Right now, most of the small sellers leaving eBay are so mad they are avoiding Paypal if they can. What is Paypal's extra edge that will keep the credit card companies out of its market? It's certainly not lower prices or better customer service.

Randy Smythe said...


They believe they can grow PayPal outside of eBay significantly enough to limit the impact of the slowing marketplace.

Remember that Merchant Services is already almost a $1 billion business.

The marketplace is the most profitable business they have so they will milk it. This is what they learned in B-school

nadine said...

Yeah, that's what eBay execs tell themselves right now. But headlines like "eBay Retreats from Retailing" and "eBay Changes Strategies, Again" were not part of any B-school plan.

Tony P. said...

Well, all this Paypal Conquers The World is fine and good, but I have a question. Or two.

Randy, do you know something you're not telling?

Here's why I ask, and anybody is welcome to chime in. Ebay had that meeting with those "top sellers" back in Feb, where ebay supposedly told them about the upcoming changes.

After hearing what JD & Co said during the analysts day event, I really have to wonder just WHAT ebay said to those sellers, the month before?

"We're going to concentrate on Paypal and let the ebay marketplace slide into the cesspool" ???

"We're going to bring in closeout/overstock dealers that will make the Diamond-sellers' category-domination look like squat in comparison" ???

IOW - What I heard (from the analysts day event) wouldn't have sat very well with those top sellers, a month earlier. I'd have heard of an "incident" involving bail money, or similar.

And if what I heard was different from what those top sellers heard, I'd have heard of THAT by now.

No tinfoil hat used, but something isn't right with this picture.

Randy Smythe said...


The meeting in Long Beach really wasn't about announcements. eBay asked a lot of questions and a lot of the sellers at the meeting would qualify as secondary market sellers.

Remember the Outlet model is a secondary market model even though the product sold there is basically the same product.

They did not talk about the big plans with PayPal at that meeting.

They have additional meeting scheduled so I should get more info if the message is changing.

2010 or Bust said...

Sorry for the short novel that follows, but wanted to get this off my chest for one last time before I just move on to passive observer of all eBay discussions as I sort of feel like it has all been said.

eBay got involved with Craigslist for a reason - to learn about a curve in the market they have seen coming: That no matter what they do, they will never be able to maintain their market share in eCommerce.

Though Craigslist has hurt certain types of sales, the lack of a barrier of entry also means that it gets a lot of cr-p listed on it that you have to sift through also. This is why there are still classified ads out there that people pay to place and that still work.

Think of it this way - if eBay can get away with making the barrier of entry as low as possible to sell on eBay while still keeping out a flood of pure junk that kills search results, they still get nominal selling fees, final value fees and most importantly, Pay Pal fees, then all is good for eBay.

This why you need to look at everything they do as to how it will affect Pay Pal. Every seller on eBay, whether they sell a darn thing or not will still be signed up with Pay Pal.

Sellers have for years been using eBay to drive sales to their sites and telephone sales so they could bypass eBay fees. eBay knows this and wisely wants to make sure that one way or the other they still get a piece of the sale. Making Pay Pal the online payment form of choice accomplishes this.

My larger point is this -- whatever they do, it will have absolutely nothing to do with how it affects eBay and its sellers unless it is in the context of how it helps them increase Pay Pal's market share. There is so much cash coming through eBay that there is absolutely no near term pressure on them while they move towards this.

I am not saying that it will work or it will not, but this is my bet as to to where it is going and right or wrong, we all have zero input as to how it will proceed.

I think Sellers get about as much respect behind closed doors as Griff does when he leaves a meeting with eBay's new management. The smart ones will accept this and figure out how to make the system work for them.

One last thing about Pay Pal - it has actually been getting better re fraud, disputes, etc. Even the sellers that don't do much on eBay will probably feel better and better about using it in their daily buying habits online. The bigger sellers can swallow and/or negotiate disputes a lot easier than smaller sellers, so even if the smaller sellers do leave eBay, they will most likely keep using Pay Pal -- which is all eBay cares about.

Of course, there will be some bitter ones who refuse to do so, but my guess is in the larger metric that these numbers don't matter much to eBay that much.

permacrisis said...

"Secondary market" is far too kind and generous a term for JD's latest preoccupation. He should fill his home with some- he can certainly afford to.

Buy a pallet or two off and you will see exactly the kind of taped-up-box, missing parts, DOA stuff that is coming our way.

Sample-to-sample variation with this stuff is far too great. SNADS will skyrocket, especially considering that JD wants to employ a catalog approach- with stock photos.

There's a reason people didn't buy this stuff the first time around. IT IS JUNK. I have a whole trailerload. The only motivation anyone would have for selling it on ebay would be if they got it free. Gray marketeers. And yet this group- the dumpster divers and waste diverters- were the first to be thrown off.

JD's changes aren't about product, they are and always have been about cultural despise. It's a rout.

Sit tight- chapter two's gonna be a doozy. But this one will only take six months.

Tony P. said...

"cultural despise"

Go read Will J's comment - all of it - here:

My novel.. er, comment is above his, but I like his better.

"John Donahoe's collection of Naugahyde Monsters "

That some funny stuff there!


Thanks Randy, for your insight. What you say makes sense, about some of those sellers being secondary market sellers.

But I have a feeling that Donahoe's definition of "secondary market sellers" wouldn't fit anyone currently selling on the venue.

Randy Smythe said...

Thanks for the link Tony.

I think they liked the idea of working with the large sellers but they realized their sweetspot was the secondary market they already own.

Where this puts small sellers is they will continue to be the red-haired step children of eBay.

Bob said...

Everybody should spend some time on the new ebay spain, its a very different ebay and could reveal some things they plan for the rest of the world...paypal revenue through classifeds and "ebay classic" broken off from the rest of the ebay shopping portal....

or google this:

Anonymous said...

What a joke. They are trying to change horses midstream. They will surely drown. Wanting to now be a bargainland - liquidation site is even worse than being a haven for Mom & Pop sellers of garage sale odds and ends. All the blabber about paypal is a big joke too. That service cannot be trusted. it is not secure or reliable. I don't care what anyone says. Go read auctionbytes blog for 3-18, a new and major glitch or hack attack has surfaced again just before the end of another lackluster Q. Surprise surprise! I just watched an entertaining video at youtube - 'ebay 2009 analyst day recap' that was more entertaining and direct to the point than any of these blogs are getting to be. ebay can only be laughed at these days. No one can or should take them seriously anymore.
If they ever want to roll the clock back a few years I might consider using them, otherwise I will take every opportunity to let people know to shop and sell elsewhere.

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