eBay’s Q3 and what it means for sellers - I of II
Yesterday, I put together some first impressions of the results, and today I was able to scan most of the analyst reports and of course listened to the conference call.
Today, I wanted to highlight some of the macro financial aspects of the call and then go through what eBay's Q3 results and Q4 outlook mean for sellers as that's what this blog is all about.
Summary of analyst thoughts
In general, the Q3 results were a non-event because they were largely known. Thus the big event was eBay's significant lowering of their Q4 outlook which caused analysts to also drastically cut their 09 views as well. Most analysts I follow took down their 09 revenue significantly $800-$1b and gave EPS a big haircut. The Q4 outlook represents flat Q/Q and essentially down y/y which has everyone freaked out. eBay showed some scary looking charts that show a continued deceleration (ecommerce and eBay metrics) going into Q4 here: (click to zoom in)
First the upper right graph is the comscore ecommerce data (eBay doesn't say if it's ex-travel or not, I assume it is - conveniently there are no labels). Comscore's August number was 6% - down from 10% in July. I've marked that 6% - remember that number, it will come back up in the metrics of interest section. Next, I drew a red line around early August in the eBay data that shows how things really started to decline for eBay. Interestingly, at ChannelAdvisor we didn't see that slowdown, but did see it right around 9/15 when FP30 was released. That bottom right chart has Wall St. freaked out right now because it is down and to the right, meaning the Q got worse so Q4 will start out at that very low data point.
Here's a brief summary of Analyst reactions:
- Brian Pitz@BofA - kept a buy on eBay and speculates that the eBay problems are macro and not eBay specific (he lowered Amzn, GSIC and goog revenues to reflect eBay trend)
- Justin Post@ML - speculates that eBay's problems are Amazon's gains: ”
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–>also losing share Given magnitude of eBay's 3Q GMV miss
($14.3bn vs $14.9bn expected) and weaker 4Q guidance, results have a negative
read-across for AMZN and GOOG. However,
eBay sellers as well as private and public eCommerce companies have indicated
more deterioration on eBay than other channels and off-eBay PayPal volumes beat
our estimate by $260mn. We are
incrementally more cautious on sector, but believe some of eBay's 3Q $640mn GMV
miss likely moved to AMZN. - Scott Devitt@Stifel - heroically kept a buy on eBay, and focused in on the value of the future cash flows which make the stock appear cheap from that perspective. He seems to recommend eBay acquire gmarket.
- Christa Quarles (who is no longer sober - ha!) tied with James Mitchell for the funniest title: “eBay: Lump of coal for the Holidays.”
- Imran@JPMorgan who has been bullish and is all about listings finally broke his bullishness: “eBay: Fall of a Franchise” and downgraded to Nuetral. Imran believes margins are going to fall considerably and thus anemic operating income will result. Imran focuses in on the various MP metrics and believes that eBay's user experience is not improved and if anything worsened.
- Meeker/Joseph@MS have an interesting 'sum of the parts' analysis summarized here: “
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–>
Our
sum-of-the-parts analysis values eBay at $26 per share. If we peg the valuation
of PayPal at $7.13 per share, Skype at $2.09, Marketing Services at $4.08, and
cash at $2.77, eBay share’s current price of $15 would imply the market is not
assigning any value to eBay’s core marketplace” - Ben@UBS points out that this is eBay's first negative growth GMV Q and like Justin@ML highlights increasing competition from AMZN. He's also concerned with some of the slow-down at Paypal.
- Colin@Lazard focused on the macro economic 'rockiness' and took down not only eBay, but Amazon, GSIC and DRIV
- James Mitchell@GS tied Christa when noted that eBay sees: “No Christmas”. James believes that the companies problems are largely self-inflicted and while not helped by the macro, certainly the macro is increasingly exposing them.
- Jeetil@DB who was bearish, is vindicated by Q3 and lowered his PT to a paltry $13 from $16. Jeetil feels eBay should sell Skype and use this opp to invest in the eBay core (I concur on this one - let's put 1000 devs on finding - NOW).
- Mark@Citi cites managements execution as one of the major problems at eBay and worries that the model is just fundamentally broken: ”
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–>
Execution — fee/rule marketplace changes have
been highly disruptive & arguably poorly implemented; & 3) Structural -
Decreasingly desirable Auction format & an infrastructure-less business
model arguably ill-equipped to match rising consumer requirements.” - Derek Brown@Cantor actually took this opportunity to leave grizzly territory for plain ole bear and has moved eBay to a hold from a 'sell'. He notes this is the first time ever that eBay has had to essentially lower guidance and thinks it's a big step towards recovery. Derek lowered 09 revs by a substantial 1.3b (biggest I saw).
- Marianne@SIG - Likes the stock here as a value play noting that it is at 9x revised EPS. She speculates that eBay could start a dividend (5%) so you should play the stock that way.
- Jim@cowen - Kept a neutral on the stock.
Jeetil had a really good graph I wanted to show everyone as it's relative to the seller impact of the Q:
This graph hones in what eBay has been calling a more important metric than GMV - transaction volumes. What Jeetil notes is that Q3 started a material y/y deceleration that he believes will go negative in Q4 based on backing into the number from the lowered guidance. Of course if transactions go down 7% y/y AND they are lower ASP, then GMV will get amplified down y/y substantially.
What's Macro and what's Execution/eBay?
The really big question coming out of the eBay call and subsequent analysts notes which we'll have some insight from the Goog+Amzn results is: “Is this slowdown specific or worse on eBay, or being felt everywhere in ecommerce/inet?”. I have some data to throw in the pot later on this point.
That's part I, part II coming later with an analysis for sellers and some Q4 action items. I also owe some FP30 insights we've learned and I'll do that this weekend as well.
Seekingalpha - I am (painfully) long eBay and (thankfully) long Google.
Originally posted here:
eBay’s Q3 and what it means for sellers - I of II
