EBay's 'unspectacular quarter' causes shares to drop 8%

Dive Brief:

EBay's forecast for its holiday quarter sent shares down 8% in extended trading, following disappointing earnings results reported after the bell on Wednesday, according to Reuters.
Q3 net income fell 23.4% year-over-year from $539 million to $413 million. Profits were hit by increased costs in marketing, branding and website improvements, the company said. Q3 revenue increased 5.6% to $2.22 billion, beating the average analyst estimate of $2.19 billion. In the quarter, eBay also added more than one million active buyers across its platforms, for a total of 165 million global active buyers.
For the current quarter, eBay expects revenue of $2.36 billion to $2.41 billion and adjusted earnings of between 52 and 54 cents per share, compared to analyst expectations for revenue of $2.40 billion and earnings of 54 cents per share, according to Thomson Reuters I/B/E/S.

Dive Insight:

Many observers predicted trouble for eBay when it spun off its PayPal payment unit last year. But in recent quarters, some of those fears were assuaged as eBay moved from an auction-oriented site to more of a direct-sales, fixed-price marketplace competing directly with Amazon. (In fact, it is PayPal that has lost some of its luster.)

But this quarter shows that by taking on Amazon more directly with fewer auctions of used or vintage items and more fixed-price sales of new items, eBay has actually demonstrated its weaknesses, according to some analysts.

Marketplace revenue in the third quarter was up 5% on a currency-neutral basis and 2% on an as-reported basis, driven by gross merchandise volume (GMV) growth of 4% on a currency-neutral basis and 2% on an as-reported basis, as well as growth in Marketing Services & Other revenue. In the quarter, the site’s StubHub ticket sales unit had GMV of $1.1 billion, up 23%, and revenue of $263 million, up 32%.

“Overall, this has been a fairly unspectacular quarter for eBay," Conlumino CEO Neil Saunders told Retail Dive. “Certainly, total revenue growth looks reasonable enough at 5.6%, but this is a long way below the double digit growth rate of the global e-commerce market in which eBay plays — an indication that it continues to lose market share. It also comes off the back of an incredibly soft comparative from the prior year when total net revenue fell by 2.4%.”

While eBay has made some much-needed improvements to the aesthetics and, more importantly, the navigability of its sites, that has merely brought it up to par, according to Saunders. “This is a good move, but we see it as one that corrects deficiencies rather than one that puts eBay on an innovative footing,” Saunders wrote. “As such, we believe that eBay needs to go much further in revamping the whole online experience in order to bring it up to par with the likes of Amazon. This includes a more compelling landing page, easier search and navigation, and better pages for individual products.”

Overall, there are three main issues with eBay’s marketplace, Saunders said. “The first is that it is hard for consumers to use, the second is that it is overshadowed by larger players like Amazon, the third is that it has faced much more competition from other players.”

On a conference call with analysts, CEO Devin Wenig made it clear that eBay has further to go, but called for patience. “[W]e’re making meaningful progress on our strategy while delivering good financial results,” he said on the call. “Replatforming a business of our size and scale takes time. However, our pace of innovation is accelerating. We’re increasingly using structured data and artificial intelligence to transform shopping on eBay, delivering more personalization capabilities, continuing to iterate our mobile experience, and bringing more unique inventory and categories to our customers. We’ve got more work to do, but I'm confident we’re on the right path.”