Auction Blog

This is the third and last part of a two part series on eBay's presentation at catalyst UK:

Part 1, Part 2 are here.

Some highlights/newsworthy items:

• eBay UK to force free shipping and handling (P+P in UK lingo) for some categories.
• No changes planned for DSRs 

Now for the complete transcript:

Answer: We will be making the announcements 60-days ahead and giving ChannelAdvisor very early availability in the sand box.

Answer: No, but we have tested and it's doing great with buyers.

Answer: Generally speaking, DSRs are working well.  They give us a mechanism for rewarding sellers at the upper end of the rankings.  There are some categories where it's extremely difficult to maintain high DSRs.  I've talked to furniture sellers with this challenge.  Thus far we haven't said we'll change our DSR rules to be category specific because we want to keep it the same and easy for sellers to understand.  My advice is to continue to do what you are doing -work with shipping partners, and be transparent.

Answer: That's nto the effect we wanted to have, this is an unusual case.  You should know your buyers enough - sounds like they want lower cost over quality.

Answer: Tomorrow there is a session for detailed questions like this.  Adcommerce gives sellers yet another opportunity to meet buyers.  We appreciate the feedback.

Answer: In auctions if there's a bid, you can't yank it. For fixed price we ask that there is clear locked down inventory.  This policy is for the best possible buyer experience.  No issues ending fixed-price listings.

Answer: We want the second change to not impact the holidays. Next year we will probably do three changes.  Major changes are those that disrupt sellers. For example, if we tweak the BestMatch algorithm, that's minor. Let me ask you a question - will this make trading on eBay easier?

Answer from the audience: I believe so - in the past your changes have made it very very difficult for my business.

Answer: Clarification - sellers already have the option for free P+P (UK speak for S+H)

(back to seller) - I don't think we're on a level playing field.

Answer: Where possible we want to make it easier for sellers.  We have pricing incentives for DVD sellers and will turn up search incentives through the year. There are some categories where we may have to go faster than the marketplace is going.  For those categories we will mandate free P+P. Free P+P is 15%, but not high enough.  They want to see it very wide-spread.  In some categories it's not the norm, others we will make it the norm.

Item title - we are not actively working on this.  In the past we use to index only the title. We now index the title and attributes.  We are doing some other things that will contribute.  We will allow sellers to create their own attributes (ChannelAdvisor supports this today BTW).  The other is multi-variation.

Answer: You'd think so wouldn't you?  We have heard this alot from sellers that they should have manditory 5s when offering free S+H.  We've heard from buyers that while the price may say free, they actually throw extra fees in there and buyers want to mark their DSRs down when that happens.

For most sellers with free P+P it's not an issue because they are above the FVF credit threshold.

Answer: Most large sellers have account managers. We now have a policy that if one of your accounts is kicked off eBay, we will not risk your main account.  Brand restrictions are in place around 50 brands where there is high risk of VERO action.  Therefore we have to take exceptional steps to manage that risk.   We've done so with stringent requirements - biz account, impeccable record, etc.

SeekingAlpha Disclosure: I am long Amazon and Google

• eBay - Hitting High Growth on the World's Online Marketplace
• Wants to tell a story that's not being reported.
• Lots of tough environment stories, but on the other hand when we speak to our largest UK sellers, you are bucking the trend and having great success. 
• eBay UK Update. 
  • It's tough, times are hard, but… 
  • Buyer traffic on ebay.co.uk is UP 
  • Buyer trust is up compared to last year 20%
    •  Last year talked about how buyer service expections were up. Customer service, dsr and other investments paying off.
  •  On the sell side.  Sold items are up 15% y/y, which is an acceleration from this time last year.
• Data from our top 1000 sellers.  This data is available in a printed report (I'll try and scan this for our US readers later in the week - it's a great piece)
• Top sellers - Sales volume up 30%, which is an increase from year ago which was 25%
  •  That's all sales, fixed price in some cases double that rate 
• We asked top sellers how they feel about the environment+eBay - 65% feel 'very confident'.  Half of the other 33% are 'not confident', the other half 'worried'.
• If you get it right, there are lots of opportunity. 
• Top sellers exports are growing at 125% y/y 
  •  eBay UK has launched a big UK Exports Campaign   (other eBayers call this CBT-cross-border-trade)
•  Top seller concerns:
  •  The pound is down 30% vs. the euro which is a double edged sword 
•  eBay has implemented lots of positive changes for sellers: based on your feedback.
  • Reduce barriers to listing 
  • Accelerate  fixed price saes
  • Reward better service - in partnership (FVF discounts)
  • Mark then detailed all the ways they addressed these - lots of changes. 
  • We think they were foundational and now have put eBay in a much stronger position and created opportunities for sellers 
  • This is the key to unlocking high-growth opportunites on ebay UK 
•   eBay Transformation
  • They've gone from single item listings to multiple item listings 
  • Moved from short duration (7 day) to long duration (fp30/gtc) 
  • Moved from a model where you pay to list, vs. when you pay when you sell (insertions are one penny here now) and free gallery
  • Moved from TES in search to BM which is optimized for fixed-price, not auctions.  BM ties search to product, price, service levels.
  • We realize this was tough for you to adopt.
•  eBay scorecard on how they've done on how they measure themselves:
  • Sales velocity 
  • Profitability 
  • Reliability 
•  How are we doing?
  • Sales velocity - up 30% for top sellers 
  • Profitability -   On average fees are down 20-30% for powersellers.
  • Reliability - (frowny face graphic) - Lots of change to absorb, we've heard that feedback.  You did tell us we are getting better at it.  He will circle back on this.
  • Overall the scorecard is pretty positive 
•  Maximising the eBay UK opportunity
  • Products 
  • Pricing 
  • Service 
  • If you have these three elements you will benefit from search visibility and multi-item sales 
  • Virtuous cycle/flywheel.  Recent Sales score - if you can get to the top of search results, you can stick there and sell high volume. 

SeekingAlpha Disclosure  - I am long Google and Amazon.

One of the views is international vs. domestic both as a bar chart and you are able to see more details about the 1/2/3/4/5's DSR scores from domestic and international sellers.

Here at eBay Strategies, since DSRs came out we've been talking about the fact that sellers with higher international sales rates suffer severely from those sales in DSRs.  In fact some of our strategies for DSRs are to carve off international or stop selling international all together.  

The new transparency that eBay has provided in the dashboard is opening up this issue to a much broader set of sellers and the reaction has been interesting.

First, all of the eBay message boards that I track are lit up with shock that international DSRs are so low.

Second, and we see this in support requests at ChannelAdvisor, sellers are asking how they can stop selling internationally as quick as possible.

As we've been saying for over a year, the DSR system is full of unintentended consequences that actually incent sellers to things that I don't think are aligned with what eBay wants.  For example, I don't think the eBay management sat in a room wondering how to decrease their cross-border-trade (CBT in eBay-speak) as that's a big part of the business and growing.  However they are achieving that and now with this new transparency, it is going to accelerate materially.

John Lawson is a top eBay seller and does some social media around ecommerce+eBay topics called ColderICE.  John had a great video on the topic that I've embedded here.  He does a better job of explaining this problem with real data from his dashboard than I've been able to do in the past:

eBay needs to either dump the DSR system altogether (a core part of my eBay 2.0 plan), or majorly revamp the system to try and fix all of the problems inherent in the way it was hastily implemented.  In conclusion, this new transparency proves that eBay's DSR system get's a 1 star -  whichis “very unreasonable” in DSR-land.  Or maybe “very innacurate” or “very unsatisfied” work better?

For all you Wall St. readers, I would add the severe decline of CBT as another headwind facing eBay's recovery right now.  The company doesn't report that piece of GMV as best I can tell, but looking across our customer base it was as high as 20% a while ago and is well on it's way to 10% in the short term and I bet if eBay doesn't fix this DSR system, it will go to sub 5%.  Layering that on top of the current GMV declines in auction+fixed price doesn't paint a pretty picture.

eBay Seller Readers are you seeing a huge difference between your domestic and non-domestic buyer DSRs?  Do you plan to stop selling internationally as well?

SeekingAlpha Disclosure - I am long Amazon and Google.

1. Amazon ProductAds Webinar - ChannelAdvisor is co-hosting a webinar with Amazon around their new ProductAds initiative.  This webinar is for customers and non-customers so if you are interested in this topic, feel free to join us.  Signup is here.
2. ChannelAdvisor Catalyst UK - Our annual ecommerce event is coming up soon - March 30/31 - signup is here and we are closing in on capacity.  This is in London.
3. ChannelAdvisor Catalyst US - April 30/31 in Raleigh - We are definitely hitting capacity here so I recommend signing up asap here.  

  

• Part I - Donahoe opening remarks
• Part II - Paypal
• Part III -  eBay Marketplace.
• Questions sellers wanted to ask (collected from twitter) 
• Part IV - Q+A 
• News round up 
• Wall St. Analyst' thoughts (this post you are reading) 
• What does Analyst day mean for sellers (coming soon)     

Usually after an event like this the stock analysts issue reports.  These reports include interesting nuances that in many cases were picked up in side discussions and what-not.  It's also interesting for eBay sellers to understand what's going on as frequently marketplace-moving changes are introduced at a high-level at these events.  Strategically, understanding where eBay is going can help sellers plan their strategies for the coming year(s) and plan for where eBay should be in that mix.

Analysts tend to use these opportunities to also change their view on a company.  Analysts have some combination of a rating (buy, sell, hold, underperform) and some have a price target.  Movements in these can move markets of course, but I also look at them as signals.  In this case, everyone in the eBay world is looking for some sign of the bottom of the marketplace's problems and when analysts get bullish that would be a strong signal.

Here's a quick recap of the analyst notes I've seen so far this am.  PT is an abbreviation for Price Target and as a point of reference the stock is in the $11-12 range right now.  These are in the order that I received them and the bolding and comments marked (editorial) are my own.  I've put the analysts into three buckets based on their ratings - Bullish, Neutral, Bearish.

• Marianne Wolk - Susquehanna (say that three times fast) - $18PT  (Editorial: Marianne had lots of paypal that I didn't put here as we focus on the marketplace biz)
  •  We believe there is value to the core eBay
    franchise, which has more than 86.3 mln active worldwide users as of 4Q08 and
    ~17-18% domestic eCommerce share in 4Q08. Many of these users are loyal
    buyers/sellers, and with stronger company actions and a more benign economic
    backdrop, we believe usage and monetization levels could improve in time
    (albeit our estimates assume this is not until 2010).   
  • The major change we heard at the analyst day is
    that the company expects to incorporate more classified listings and
    advertising with the search results for users. (Editorial - more advertising - GREAT!)
•   Heath Terry - FBR - OUTPERFORM - $16PT
  •  While
    there is significant execution risk as the company attempts to create a
    “New eBay”, at less than 6x forward EBITDA we believe investors are
    being paid to take that risk. We believe the stock represents an attractive
    long-term risk/reward, as our $16 price target equates to a 6x EV/EBITDA
    multiple.  

• Spencer Wang - Credit Suisse- PT - $15 - Neutral
  • Overall,
    we are encouraged by management’s initiatives to maintain its role as a key
    connection between buyers and sellers of goods, to extend PayPal’s scale, to
    “transform” Marketplaces, and to accelerate growth at Skype.   
• Gene Munster - Piper - Neutral - no PT
  • We are incrementally more positive on eBay, given potential
    changes to the marketplace platform, which could come late in
    2009, according to the company. We remain Neutral on EBAY shares, as
    ultimately, we need to see changes to the platform that improve the
    user experience and arrest market share losses. 
• Collin Sebastian - Lazard - HOLD -  
  •  2011 targets provide an optimistic
    scenario assuming a rebounding economy. Highlighting the Analyst Day, management
    provided a range of 2011 revenue and margin targets, under the assumption
    that the economy rebounds next year and that growth in PayPal, Skype, and
    marketing services continues to offset the declining auction marketplace.
    In the near term we expect 2009 to be another challenging year for eBay in
    the midst of transition in a weak economy 
•   Imran Kahn - Neutral - 
  •  …we continue to be cautious on the story, as many of the announced
    changes may not fully materialize until 2011. Additionally, we believe
    competition from Amazon and other online commerce sites could create further
    risks to the company’s financial targets. 
•   Jim Friedland - Cowen - Neutral - 
  •  (1) the company is actively addressing the
    challenges in its core marketplaces business, but we think its three-year
    revenue and margin projections are too high; (2) PayPal is well positioned to
    demonstrate continued growth; (3) Skype is for sale in our view; and (4) a
    dividend is unlikely and management seems to be unwilling to repatriate its
    cash position for a buyback due to tax implications. 
  •  We think competition from alternative channels,
    such as Amazon and Google Search, is a serious threat to the marketplaces
    business. Amazon and Google offer attractive seller pricing (it is free to
    upload inventory to Google's product search database). Further, we believe the
    superior buying experience on Amazon and search experience on Google reduces
    the value of the eBay platform for buyers and sellers. Even though eBay is
    dedicating significant resources to enhancing search, improving the user
    interface, and other buyer/seller features, we believe it will be difficult for
    the company to catch up to Amazon.
•   Mary Meeker - Morgan Stanley - equal-weight
  • eBay noted 2009 marketplace GMV should grow slower than market (we assume -12% Y/Y); 2010 should grow with market (we assume +8% Y/Y) while 2011 should grow faster than market (we assume only +4% Y/Y).  
•   Derek Brown - Cantor - HOLD - $13 PT
  • On the one
    hand, we were very impressed by mgmt, most (if not all) of whom were
    presenting at his/her first Investor Day; its willingness
    to admit past errors/oversights in strategy, product development,
    technology and customer relations; and, its unyielding
    commitment to drive “foundational” change within the core of eBay
    (both its culture and Marketplace franchise); on the other, it
    seems clear to us that eBay's revitalization efforts remain very
    much a work in progress and we think hopes for a healthy
    recovery by 2011 may be premature.
• Ben Schachter UBS - $14 PT, Neutral  
  • Management expects the Marketplaces division to grow
    slower than the market in 2009, with the market in 2010 and outpace the market
    in 2011. EBAY expects to bring large
    scale changes to its Marketplaces division that will take time to implement.
    The company is attempting to improve its user experience by expanding efforts
    to include more liquidation/out-of-season products and by overhauling its
    search function to bring more relevant searches to the forefront (highlighting
    inventory from across the EBAY ecosystem). Even if we assume they can execute
    on this strategy and stabilize the marketplace, it will take time and guidance
    does not imply real growth until 2011. We continue to remain cautious on
    management’s ability to execute and expect the stock to reflect more near-term
    execution than promises the company makes about 2011.   
• James Mitchell - Goldman (Golden Slacks as Cramer says) - $14 PT  - Neutral  
  • We view
    management’s marketplace objective of focusing on the “secondary”
    (used/discontinued/discounted/ end-of-season items) rather than “primary” (new/in-season
    items) category as a rational strategy for minimizing head-to-head conflict
    with Amazon. However, “secondary” may account for a declining portion of
    overall e-commerce over time, potentially condemning eBay’s marketplace to
    perpetually under-grow the e-commerce market.   
• Christa Quarles - TWP - Market Weight 
  • We believe eBay's
    strategy makes sense and the actions the company has taken thus far (changing
    management, putting technology at the centerpiece, strategically cutting costs
    and reinvesting in growth) are in the right direction. However, it's still
    unclear if core marketplace will look as management defines it in 2011 (e.g.
    the margins may be 25% not 35-45%) and it may take much more time to fix,
    particularly if the macroeconomic environment stays weak. We remain on the
    sidelines, but could start to see some value investors with long time horizons
    starting to get more interested in the story.  

• Justin Post - Merrill Lynch - PT - $13 - UNDERPERFORM
  •  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. 
•   Jeetil Patel - SELL - $11 PT
  • 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. 
  •  Near–term, the marketplace business is expected to
    underperform industry growth trends before flattening out next year and
    reaccelerating in 2011 – representing an optimistic view from eBay, we think .
    Clearly, this business represents the cash cow, and risk remains on declining
    demand, high seller commissions and lack of interface changes. We think the
    Skype unit is actually performing well, and management should hold on to this
    business model.   
    
  •  The problem in the core lies with lack of demand, seller fees running too high and an e-commerce interface that is inconsistent with the industry norm (think product orientation, not listings metaphor). It is quite difficult for sellers to generate cash flows if they have to discount pricing (relative to other sites and direct) and maintain in-line to above-market commissions on selling on the platform, especially with weakening demand.  

Seeking Alpha Disclosure - I am long google and Amazon