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Tuesday, November 24, 
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eBay earnings preview

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eBay125.pngEBay Inc. (NASDAQ:EBAY), which plans to lay off several dozen people, will report third-quarter earnings on Wednesday with the Webcast earnings call scheduled for 2:00 p.m. PT. Analysts are projecting a sliver of growth instead of declining revenue, which eBay has faced for a year. They project earnings of 37 cents on revenue of about $2.14 billion compared to last year's third-quarter numbers of 38 cents and $2.12 billion.

EBay is making strides to make its site uncluttered and refocus on its core e-commerce business, positioning itself well for what looks like an economic upturn. Collins Stewart LLC's Sandeep Aggarwal has a buy rating on eBay, with a target of $29. The stock has showed improvement since March -- as has the rest of the market -- having dipped as low as $9.91 to closing at $24.49 on Friday.

While PayPal is strong, the marketplace business is where eBay gets most of its profits, and the San Jose, Calif., e-commerce giant is working toward growth there. Aggarwal wrote in a research note:

We believe that addressing/correcting the structural problems of Marketplaces (e.g. legacy auction bias) is a key step towards unlocking value in the stock. We believe that free shipping, merchant quality, changes in search, higher selection, TRS (top-rated seller) and buyer protection are enhancing the value proposition of eBay Marketplace. We believe that the transformation in eBay's Marketplaces has negative bearing for Amazon.com Inc. (NASDAQ:AMZN).

The Wall Street Journal says analysts will also be watching closely the company's gross merchandise volume, or GMV, which represents the total value of all goods sold over the site. The Journal quoted a line from a Bank of America Merrill Lynch research report by Justin Post from Oct. 5 saying the removal of high-margin advertising and annoying feature fees from the site and additional spending on marketing to add users is a reasonable strategy, driving consumers to an improved eBay.

Refocusing on e-commerce

During boom times, eBay experimented with different businesses but decided to reverse course and get rid of what was not part of its core.

The deal everyone's watching right now is eBay's sale of 65% of VoIP company Skype to an investor group led by Silver Lake that includes Index Ventures, Andreessen Horowitz and the Canada Pension Plan Investment Board for about $2 billion. The sale is in danger as Skype is being sued by its co-founders to stop using -- or make some serious concessions in the suit -- a technology that Skype basically runs on. Here's the latest on that legal wrangling.

Earlier in the year, StumbleUpon, acquired by eBay two years ago for $75 million, parted ways with the online auction giant as it returned to the ranks of an investor-backed startup. It cited a lack of synergies. It was also suggested that eBay could sell online ticket broker StubHub, which it acquired for about $310 million in 2007. EBay also tried an interesting deal with General Motors Co. to sell cars on its Web site, but that didn't work out.

Beefing up its core earlier this year, eBay acquired online retailer Gmarket Inc. for about $1.2 billion, which it combined with its existing South Korean marketplace business, Internet Auction Co.

EBay's M&A strategy has also made it a candidate for our Most Admired Corporate Dealmakers award in the IT sector. See who the other candidates are and vote at www.TheDeal.com/CDsurvey. - Baz Hiralal

Also see:
Internet M&A watch list


eBay Inc.
Acquisitions
Date
Target
Acquirer
Deal value ($mill.)
4/15/09
Ebay Gmarket Co. Ltd. eBay KTA (UK) Ltd.
(Parent: eBay Inc.)
$1,210
10/6/08
Den Blå Avis A/S and BilBasen ApS eBay Inc.
390
10/3/08
Bill Me Later Inc. eBay Inc.
905
1/28/08
Fraud Sciences Corp. PayPal Inc.
(Parent: eBay Inc.)
154
5/30/07
StumbleUpon Inc. eBay Inc.
75
1/10/07
StubHub Inc. eBay Inc.
310
4/24/06
Tradera AB eBay Inc.
48
4/11/06
Sonorit Holding AS Skype Technologies SA
(Parent: eBay Inc.)
27
Total
$3,119






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Comments
Comments
From: Patricia013,

Tell me, what flavor of KoolAid did you drink at John Donahoe's party??? A sliver of growth? What a joke! The amount of revenue lost by the ideas set in motion by that man is incalculable! I would like an estimate of how much he LOST by his crazy disruptive innovation? Anybody got THAT figure? Anybody even think of the business he lost and is still losing? Ask the sellers whose items are hidden in his manipulative search. Ask the sellers who didn't make the TRS program about that cute purple button on the listing pages that omits all but TRS sellers!


From: Ric,

If eBay revenue shows a slight increase it will likely be a result of revenue shifting and not a reflection of improvements at eBay.

eBay has been engaged in gradually transferring the shipping function from PayPal over to eBay. A slight decrease in revenue would not negatively impact PayPal, but would generate the appearance of eBay generating more revenue.

Recent statistics from Neilson reveal that unique traffic on eBay has reached a new 5 year low, reflecting the reality that eBay as a destination for Internet purchases is declining.

That decline is not reflective of a pull back in Internet shopping however, as Amazon (eBay's main competition) received higher traffic counts in the same period.

The spin out of eBay has been lower traffic has been due to the economic downturn and their excuse simply does not stand up to the facts.

It is apparent that eBay is suffering from a lack of interest. Changes brought by neophyte CEO John Donahoe have served to alienate buyers and sellers alike.

eBay's listing counts have virtually quadrupled over the past 2 years, yet despite the significant increase in listings, sales have been in steady decline. To put it in basic terms, eBay is not generating volume consistent with the growth in listings.

eBay's market place has become a jumbled mess. Coupled with serach in which eBay manipulates items surfaced to potential buyers, buyers are simply voting with their mouse clicks and choosing Amazon over eBay.

eBay's CEO outlined a three year plan to turn eBay around. When one looks at the steadily declining sales on eBay versus the increases shown at Amazon, it is apparent that the 3 year plan is having the revese effect.

eBay is a company in desperate need of new leadership. John Donahoe and his team have demonstrated a lack of transparency, integrity, and vision.

If eBay's Board of Directors does not step in and make drastic changes of their own with regard to executive leadership, eBay's marketplace may be irreversably damaged.


From: Anne,

Have any of these analysts ever sold on Ebay on a consistent basis? If they did they would have a far different story to tell. I'd like to pose a challenge to one of these analysts: Do a little investigative reporting. And then come back with "What it's like to be a seller on Ebay".


From: david j,

"We believe ..."

I am not sure how anyone can come to a firm belief/positive outlook for ebay when everything points to the opposite being more likely. Everything that really matters is down. Traffic, sell through etc.
Add in the blunders we saw such as the GM sales fail. more layoffs, the entire skype circus, and the ever-present "noisey" users complaining...

Have any of the analysts tried using ebay lately? The site unreliable, even unusable. Has numerous functionality issues besides the search not working well.

Sorry I cannot get behind any positive sentiments.
Ebay seems to be in decline looking strictly at the facts, not 'beliefs'


From: Chris,

Ebay management will try to pass the slight increase in earnings as a sign of 'things improving'. In reality though, when one compares the earnings with previous years, Ebay is in decline or at best has stagnated. All the new management has succeeded in doing is to make more money from the existing sellers by fee increases from the back door (focus on 'buy it now' items, TRS programme, free shipping, no option for insurance) rather than by expanding.
Let's say for example that I sold an item worth £10 in the past. Ebay would make take their commission on that which would be let's say 8%. Now if I have to offer this item with free postage + free insurance I will put up the price let's say another £5 so the final price will be £15. Thus Ebay will make an extra 8% on the £5.
Let's also not forget that Ebay is a site known mostly for finding second hand good items at low prices. Is it not paradoxical that in a period of financial crisis Amazon's traffic and sales have gone up when are mostly known for selling brand new items? At such times of difficulty Ebay sales should have doubled at least since people who can't afford the new items will try to get the same or similar item at a reduced price. But in practice things didn't work that way: instead of Ebay making it easier for people to sell their stuff on the site they made more difficult and more expensive. Various changes who targeted the sellers drove many of them away (i.e. not being able to leave negative feedback for bad buyers, getting suspended for a policy breach without the chance to even appeal etc.). In my opinion the current Ebay management has failed in their mission and should be replaced. The only thing that saves Ebay at the moment is their name and monopoly position but that won't last forever.


From: Philip Cohen,


Shill Bidding on eBay: Case Study #2

Shining some light on the more sophisticated and therefore harder to detect shill bidding activity by many “professional” sellers on eBay auctions

This time a spreadsheet analysis of multiple auctions, from some "professional" sellers from the US and Australia. Needless to say the analysis demonstrates, once again, that, contrary to eBay’s claims, shill bidding by many “professional” sellers is rampant on eBay auctions. The full comment and spreadsheet download links at:
http://www.auctionbytes.com/forum/phpBB/viewtopic.php?t=24296


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