eBay’s Q4 Results Analysis from a Seller’s Perspective
Yesterday, January 27, 2016, after the market closed, eBay announced its Q4 2015 results. In a nutshell the results were in-line with expectations, but the forecast for 2016 was below expectations. Most of the Wall St. analysts were concerned about the long-term health of the eBay marketplace and when a turnaround may materialize.
Before jumping into our analysis, here is our dashboard of key metrics we monitor:
As you can see from the results tracker, eBay struggled to grow as fast as e-commerce (13-15% – comScore). One important aspect of Q4 was that the company broke out ‘eBay Inc.’ into three components for the first time:
- Core Marketplace – The main eBay marketplace.
- Stubhub – eBay’s ticketing company that was acquired back in 2007.
- Classifieds – eBay operates craigslist-like classified sites in the US (eBay Classifieds) and a variety of other brands in the US. Like Craigslist, they are mostly free with some $/listing revenue in categories like jobs and autos.
While this gives more transparency to the business, one of the negatives is that all of the metrics in the results tracker are for the ‘whole eBay’. It turns out the ‘Core Marketplace’ was actually the slowest growing component. For example, Stubhub was growing ~30% and classifieds were growing 15% (but they are much smaller than the eBay core marketplace). Thus, eBay disclosed that the eBay core marketplace grew at 4% in Q4 and that was a slow down from Q3’s 5%.
In addition to the Stubhub/classified/core marketplace breakout, there were a lot of new ways of talking about the eBay Marketplace on the conference call. We have therefore broken the results into a couple of categories below.
New metrics: eBay C2C vs. B2C
The most curious part of the conference call came when CEO Devin Wenig said that the headwinds to the core marketplace were SEO, Mobile and C2C. This is unusual because it’s the first time eBay has talked about C2C (Consumer to Consumer) in a very long time and with the focus on eBay Valet, trade in programs and other C2C activities it’s unusual that eBay continues to focus there.
Later in the call, Wenig said: “…our B2C business, which is the best analog for other retail and marketplace businesses, grew 8% y/y.”
The B2C (business to consumer) nomenclature was also new this quarter and it’s not clear how eBay is determining what seller is in which bucket. In the UK for example, you register as either a C2C or B2C seller so that’s easy, but in the US they must be using some undisclosed threshold to determine who is C2C vs. B2C.
While eBay didn’t disclose a mix, our estimate has always been 80% B2C for eBay and 20% C2C (from a GMV not listings perspective). If that’s the case and B2C was up 8%, then C2C would have to (mathematically at least) be down 4-6% y/y.
We’ll have to see if eBay expands on this new way of looking at the business.
eBay Challenge Areas (Mobile, SEO, C2C)
In addition to C2C, eBay mentioned Mobile and SEO as challenge areas.
Macro Challenge Areas
A couple of metrics that continued to show signs of challenges:
- Active buyers – Active buyers increased 5% to 162m active buyers. eBay did say on the call that new regions like India are driving a lot of the growth in this metric.
- Sold items – Perhaps the most concerning metric was sold items, which came in at 4%, a deceleration from Q3 and the lowest I’ve seen the metric since eBay started reporting it. eBay cited category mix and volume. In e-commerce when this metric goes down it generally means that buyer frequency decreased and/or the cart size (Average Order Volume or Average Selling Price) declined. Some of this could be new regions like India, but that probably doesn’t explain such a steep Q/Q change from 7-4%.
- December weakness – Once comment on the call that many of the Wall St. analysts latched onto was when eBay’s Wenig said: “we started to see small signs of softening in December.” Many analysts took that to mean that sales weakened at the end of the Q which doesn’t bode well for 2016.
In March of 2014, eBay suffered from a ‘Google action’ which significantly reduced their free traffic from the Google search engine (aka SEO – Search Engine Optimization). Since then, eBay has been trying to replace this traffic by fixing their challenges that made Google take action. Unfortunately, according to SEO experts, Moz, eBay as again on the ‘top SEO loser’ list for 2015.
I’m not an SEO expert, but when I talk to SEO gurus, many folks believe eBay’s SEO challenges go back to a highly publicized report in 2013 where eBay called Google AdWords ‘ineffective’. Interestingly on the Q4 conference call, eBay’s Wenig did say: “Our most efficient marketing spend on an ROI basis is paid-search”, so maybe eBay is trying to make amends with Google to get out of penalty box.
eBay’s biggest initiative to solve the SEO problem is their SDI – Structured Data Initiative (more on that later).
It was interesting for eBay to talk about Mobile as a headwind. While they did disclose that Mobile GMV grew 21% y/y, that was a decrease from past quarters (no details provided). In our SSS data, for example during holiday 2015, Mobile sales grew > 50%. ComScore said that desktop grew at 6% vs. mobile at 60% .
Another interesting aspect of the mobile 21% GMV number is that at 4% overall growth and mobile at 43% of GMV, then desktop at eBay must have mathematically decreased 4-5%.
In any case, Mobile has always been a strong-suit for eBay, so what’s going on?
On the call, Wenig said that in September of 2015 they released a new mobile platform called eBay 4.0. It’s been widely reported in the press that the reviews on this version of the eBay app were not positive.
To that point, Wenig said: “While reviews of the mobile experience we launched in September have significantly improved, it’s not yet delivering results on par with the prior version. We’re aggressively iterating it to enhance the user experience and to drive adoption and usage, and our new platform is enabling us to get new releases in front of our users more rapidly and efficiently than we have in the past.”
So it seems like the eBay 4.0 mobile experiment is not going well and is the root cause of this mobile slow-down.
eBay’s Silver Linings
Not everything was bad news in the quarter, there were some positives that eBay highlighted (many were around structured data which we’ll cover next):
- Fixed price GMV grew 12% y/y (somewhat in-line with e-commerce). Conversely auctions declined 22%
- B2C GMV grew 8% y/y.
- eBay processed 265m transactions in Holiday 15.
- eBay said that they had a “very strong Cyber Five” (The five days from Thanksgiving to Cyber Monday).
- Stubhub and classifieds were growing faster and in-line with e-commerce respectively.
- US sold items grew 7% y/y which may indicate some strength in the US vs. non-domestic.
- Promoted listings went from an experiment to a broad roll-out very quickly. eBay said they have also expanded the placement of these ads as well.
eBay’s Structured Data Initiative
eBay spent a LOT of time on the call updating their Structured Data Initiative, here are the highlights:
- The SDI is now in 18 categories.
- SDI now covers 37% of listings vs. 28% in Q3.
- 79m items were added to the product catalog.
- eBay expects to be at 60% SDI coverage by March 2016.
- Most Wall St. reports say they do not expect to see any meaningful improvements from SDI until 2017.
- Coverage is ‘phase I’ and phase II of SDI is the creation of a ‘grouping and merchandising layer’ in search.
- In Q4, eBay’s users created 1m product reviews (with SDI framework) which was up 20X from Q3. Product reviews are important because they create a lot of great user-generated content for SEO algorithms to index and latch onto.
eBay also had several slides in their presentation that we encourage sellers to check out if they are interested in where SDI will take eBay. You can download the deck from investors.ebayinc.com under Q4 results, “View Presentation”.
I’m an eBay seller what should I do?
This is a lot to digest and the headlines in the press reports make it sound like eBay is on it’s last leg. It’s important to remember that eBay has 160m active buyers, ~$22b in GMV for the Q and > $80b GMV annually. They are the number two marketplace in the US and outside of China by a huge margin (the next biggest non-Chinese marketplaces are single digit billions).
That being said, in an environment that is now growing y/y, and is set to have a LOT of change going into 2016/2017, it’s prudent to continue to:
- Hone your eBay strategy – Are you set to take share on eBay? How can you leverage SDI to your advantage?
- Diversify – The larger a % of your ‘GMV pie chart’ is on eBay, the more of a growth headwind you could face. Most sellers are on eBay and Amazon, but be sure to explore the Jet.com’s, Newegg, Sears, Best Buy and other marketplaces. Each one won’t be as big as eBay or Amazon, but if you can get 3-5% of growth out of each new marketplace and you add 3-5, that can help make your year.
- Be aware – eBay is under a lot of pressure to accelerate growth and historically that has meant that the platform changes will be coming fast and furious. We’ll do our best to keep you up to speed on changes, but definitely keep your ear to the ground as I imagine there will be 2-4 seller releases this year to accommodate all the changes eBay is going to want to make.
Q4 2015 was a tough quarter and holiday for eBay. They are fighting battles on many fronts: SEO, mobile, C2C, currency fluctuations and Amazon plus all the other pure-play and omni-channel retailers that are upping their e-commerce game. We’ll keep you posted on how initiatives like SDI are going for sellers and hopefully by Q4 this year, eBay will be back on the e-commerce growth trajectory.
This blog post was written by Scot Wingo, ChannelAdvisor Co-founder and Executive Chairman.