Auction Blog

This morning, eBay made a major multi-faceted announcement and held a conference call with analysts.

First, eBay is laying off 10% of its employees as has long been rumored. This is 1000 employees, many temporary and contractors.  This will result in $150m in annualized savings.

eBay then did a good job of lumping in a bunch of other announcements so not much attention was given to the layoffs.  In fact no information was given to the departments or nature of the folks impacted.  We'll keep an eye out for that information as it becomes available as sellers are very concerned about impact to customer service (buyer and seller).  eBay is going to take a $70-80m charge for the layoffs.

Secondly, eBay confirmed Q3 guidance, with a low-end revenue and high-end EPS view.

Thirdly, eBay announced some classified sites in Denmark for $390m.

Lastly, and definitely the biggest (and in my mind riskiest) announcement today is that eBay has acquired BillMeLater (BML).

BML is an interesting business with perhaps deeper retailer checkout penetration and TPV than off-eBay paypal.

Background on BML
BML has had a great business over the last 3 years. BML really started ramping up in 2006 and in holiday season 2007 hit its stride by offering consumers off-credit-card credit on the fly.  The way it works is a consumer goes to checkout and BML is there as a mark beside Visa/MC/Amex/etc.  When the consumer chooses BML, they enter their SSN and then are either approved or not approved.

For many consumers, if they have a high enough score, they are given 'super sized' approval (e.g. $100 in cart, $200 is approved) and thus retailers love it because it improves the average order value.  Consumers love it because:

1. It's safe - only your SSN is transmitted (personally that freaks me out more than my credit card)
2. It's 'free credit' - it isn't on your credit cards so you either
   1. Keep room on your card or
   2. if your card is maxed out, you get effectively another credit card

Industry lore is that eBay tried to buy BML last year, but BML rebuffed and said they wouldn't sell for less than $2b.  eBay decided to compete by adding similar functionality to Paypal with something called PayLater (PPPL).    As best I can tell, PPPL hasn't had any traction as it was too conservative only working on transactions in the $50-100 range and was only offered in express-checkout which has very little retailer adoption.

On the back-end, BML acquires loans from some institutional company and that's the piece I don't think anyone understands and wasn't really illuminated in the call.

BML stats
Some datapoints revealed today about BML's biz:

• BML is offered by 75 of the top 200 merchants in the IR500. 
• BML's Transaction Payment Volume (TPV) is $1b/yr (2008E) vs. 800m last year (25% y/y)
• BML's revenues are estimated to be $130m this year (meaning eBay effectively paid  7x revenue) (see my risk factors below)
• BML has a 46% repeat user rate (like a credit card once consumer gets the BML credit, if they don't use it, they can come back)
• BML has 4m registered users (vs. Paypal's 80m+)
• BML has a 12.5% take rate on TPV
• BML's profitability wasn't really detailed

The Acquisition

• eBay is acquiring BML for $820m and $125 in options
• The deal will add $150m in 09, and dilutive by $.06 on EPS
• Will be accretive by 2011 (wow, long time for a payoff)
• eBay will be assuming a $550m book of receivables (yikes, that sounds like almost all of last years TPV).
• John Donahoe said the acquisition is less than half it would have been a year ago on the conf call.

My Risk concerns around BML
BML was huge last holiday season based on our data and there's a real business there and overall I think it does make sense to be part of Paypal, long-term and it does achieve some of the strategic pieces that Donahoe covered on the call (extend to larger retailers, etc.).

However, I have three big areas of concern around BML:

• Short-term risk: In the eBay deck this am, they showed the 2008E revenue for BML at $130m.  As with any retail-based business, I'm sure at least 30% if not 40% of their revenue comes in Q4, which is front of us. If we have a slowdown, I'd guesstimate that there's a good 20-30m at risk in that 08E.
  • They then guided 150m in revenue next year for BML. Why would eBay buy something growing at 25% and then slow it down vs. accelerate?
• On the front-end (consumer facing) , I'm sure this holiday demand for 'cheap' credit will be extremely high as consumers are maxed out on their houses and credit cards.  So BML will have a lot of requests for transactions.  However, they may need to really jack up the level at which they give credit and if they don't manage that right they could either have lower than desired TPV or higher with more risk involved.
  • A second issue with the demand side is that as they raise the bar on credit, it results in a poorer consumer experience.  Right now most consumers get the credit, but imagine only 5% get it, that's a bad buyer experience and BML could get a retailer backlash if consumers put that bad experience back to the retailer.  The BML CEO admitted they do this on the call.
  • Thirdly on the front end (consumer) as consumers fall over due to the economic issues, you could see defaults rise substantially.
• Last and certainly not least.  BML on the back end (commercial lending - b2b) takes credit and issues it to consumers on a per-transaction basis.  Think of it as taking big chunks of credit ($550m out there right now I guess) and then chops it into little $100-500 chunks.  It's no secret that the credit markets are a total trainwreck and eBay just got itself squarely involved in a credit 'middle man' business.
  • I'm guessing eBay will fund this off their very healthy balance sheet and/or leverage their credit facilities.
  • What if BML is integrated in Paypal (who has $60b in TPV/yr as of Q2) and let's say they get a great adoption of 10%. That's $6b of credit.  While eBay has a pristine balance sheet, I don't know what would happen if something like this happened.  Of course eBay+BML can control this outflow of credit, but it's an interesting and important exercise to look at and understand the scale of the back-end credit piece eBay could have just bitten off.

On the call, the BML CEO referenced their years in credit as being able to mitigate this, but that didn't really allay my concerns as we face a credit world unlike any ever seen  before so how do you model that?  The CEO also insisted that it isn't credit, which didn't make any sense to me - if it quacks like a duck and walks like a duck….

I left the call feeling like this was a bailout of BML and concerns around eBay+Paypal getting into the credit business in a BIG way.  I don't know how much experience they have with that and even if they had tons of experience, they are now subject to the crazy gyrations of the credit markets.  e.g. LIBOR going up now matters to eBay and historically nobody really cared. 

Integration
The trick as with any M+A is for eBay to integrate this right.  For example, if they shutter BML and try and offer it as PayPal PayLater, that wouldn't be smart.  The Paypal team has a better history of M+A (verisign, etc.) than the rest of eBay so I think integration risk is pretty low here.

I wonder if they will report both TPVs or try to blend them and I also wonder if they will push for a Q4 integration - seems unlikely as the deal isn't even closed yet so they can't begin in earnest yet.

Amazon and BML
Last December, Amazon invested in
BML and now offers it as an option.  It's going to be interesting to
see if Amazon can get BML off the payment options before the holidays
or will they chose to continue to partner here?

eBay platform and BML
It will be interesting to see if eBay can get BML out for the holidays and if they pass any of the benefit (free transaction payment) on to sellers or if they hose sellers over and charge them Paypal rates for something that would normally be free off-ebay.

The Bottom Line
The layoffs will probably be viewed as net positive as they will reduce costs and improve profitability going into some severe Q4/09 headwinds. The BML acquistion is one that will have to be watched closely long-term.  Short-term given the unbridled fear of the word 'credit' right now, I expect the market to punish eBay severely for this acquistion and I suspect eBay will lose much more than the $1b it paid BML in market cap in the short term as investors flee in fear from the dreaded C word.  The only thing worse timing-wise eBay could have done is announced some kind of sub-prime lending effort.

Long-term I definitely agree there are synergies in the two businesses, but I don't think we'll see them until Q409 and with the guidance BML won't even be accretive until 2011, so this is a very long-term play and right now the market isn't thinking past lunch, much less 2011.  We'll be tracking the integration very closely as it will have implications for eBay sellers both on and off eBay.

SeekingAlpha Disclosure: I am long eBay and Google

More:
Big eBay news this am - layoffs, acquires BillMeLater (gulp)

Back in June, I talked about the various discount/cash back programs that eBay was testing including eBay Bucks (eB) and LiveSearch (LS).  As a buyer, I've been experimenting pretty deeply with both programs and wanted to report back on them.

eBay Bucks, XXXX (well I would use a rhyme here but it would be in poor taste)

I was admitted into the eBay bucks program and made sure all of my purchases qualified.  I was able to get $71 in cash back which was all great. Here's what it looks like as you gain cash back:

Great! Then on August 22nd I was told that I had a voucher for my $71 and in mid September, made a $100 purchase that I was going to use my $71 voucher on (being mindful that it can only be redeemed on ONE item) and much to my shock and dismay, eBay only gave me a voucher for $16.68.   What the heck!? See the screen shot below for proof of the short-change.  The red box and arrow are my additions, but you can see right here how it is only giving a portion, but on the previous page it literally said $71!?

I hopped on livechat and they informed me they don't have anything to do with eBay Bucks so I have to send an email to rewards@ebay.com.  You can guess how fast I've gotten a response on that one…..

Live search cash back experience

The Microsoft Live search cash back program on the other hand has been a great experience.  I signed up with Microsoft and made sure that every eBay purchase was initiated from live.com and that I saw the banners on eBay that proved I was logged in correctly. While this was a little more work than eBay Bucks, on the back end it has been great.

I waited the requisite 60 days, the funds from the rebate were available and then I was able to transmit them to my paypal account and spend them on a number of eBay items.  Oh yeah - the amount was RIGHT too, they didn't short change me.

Conclusion:
eBay bucks is a good idea with terrible execution that initially made me happy as a
buyer but because it essentially robbed me of $50, has
eliminated all possible good will and led to a net negative
experience.  eBay should cancel this program immediately, lest we have
all these buyers during the holidays getting short changed and leaving
eBay in droves.  It's a little easier on the front end, but even if I received 100% of the promised funds it has too many restrictions (have to use the $ in 30 days on ONE purchase).  Isn't it better to keep it simple?

Live search cash back is a little more complex on the front end but wins hands down because:

• It works (yes that's a requirement)
• It is flexible - I can shop with several vendors AND can use my $ back anyway I want to
• It is easy to use

SeekingAlpha disclosure - I am long eBay and Google

See the original post:
Update on eBay discount paypal coupon programs - Live search cashback and eBay Bucks

Ever since 9/16 when fp30 rolled along with a bunch of finding bugs, we have seen sales plummet in many categories with apparel and jewelry being hit the hardest.

While most sellers are focusing in on some of the eBay finding wackiness, one seller noticed google had all but disappeared as a 'source' of traffic in their advanced store reports.

Based on that tip, we started doing some looking and saw some very unusual behavior.

Here's a search for a popular Nike product's model number:

Notice that the second, third and fifth search results are all for eBay international sites and not “.com”

I've run literally hundreds of searches and you have to really work now to find eBay in the organic (and even paid I'll add) google results.  Interestingly enough, when I did find the occasional eBay listing in the index, it was an FP30.

Note that eBay's pagerank (PR) doesn't seem to have changed - it's at 8/10.

Theories on what is going on…
I have a couple of quick theories on what's going on:

• Given their track record in the last couple of weeks, it's possible that eBay has done something to mess up the crawlability of the site.
• It could be that eBay has asked google to not crawl anything but fp30 dramatically reducing the number of eBay listings in the google index (this doesn't seem very smart, but hey anything's possible I guess)
• It could be that Google is using this tough spot for eBay to kick them in the ribs and has decided that eBay listings are 'not relevant' and yanked them from the index.

Personally I think the last theory is the most probable given the near overnight disappearance of eBay's listings from the Google index.

Readers - any insights into what you are seeing/think is going on?
SeekingAlpha Disclosure: I am long eBay and Google

Is Google hitting eBay while they are down?

Well today eBay officially launched the Multi-quantity 30-day duration fixed price listing (FP30 for short). 

I'm proud to announce that we are already not only supporting FP30 TODAY at ChannelAdvisor in both our MarketplaceAdvisor Standard and Premium offerings, but we've done some enhancements to take advantage of how the relist works so that our customers will be advantaged with their recent sales.

This was tricky because eBay hasn't had this in the API until it went live on the site at midnight PT, so we had to have a team working on this in real time to support it, test, it, etc.  In fact, this new format won't be in the eBay sandbox for weeks.  Clearly the business changes are coming faster than the rest of the company can keep up right now.

In fact, our sales team heard from one poor Turbolister seller that TL won't even support FP30 for at best a week or two.  Ouch, talk about a disadvantage.  Think of all that sales velocity this seller's competitors will be able to build up.  I don't know if Blackthorne or any of the other myriad eBay listing tools will support FP30 yet, but it's not a long shot given how it was rolled out that they will be days if not weeks behind.

Off to a slow start
Given all the hoopla in the press and supposedly nashing of teeth around this new format, it's off to a slow start.  We have about 150 customers that have listed an FP30.  Here's one of the first ones if you want to see what it looks like 'live' on eBay.

Part of what's going on with the seller base is, for lack of a better word, eBay fatigue.  Sellers feel their businesses have changes so much (DSRs, BestMatch, etc..)  for so little/no/decline in sales that eBay is increasingly becoming a lower priority for them and thus they will tend to be reactive vs. proactive as they would have been as recently as 6 months ago.  To be honest, most of our larger sellers are spending their time getting their websites and other channels ready for the holidays and eBay just isn't a priority.  Of course this doesn't bode well for eBay, but it's the reality of what is going on in the grassroots of ecommerce.

So unless eBay puts a promo on the FP30, I don't see this mass switch to FP30 over the store format or anything until maybe Q1 after the holiday dust settles.

I'll keep a close eye on the trends and report anything of interest.

For those ChannelAdvisor customers that are also blog readers, we have details on our FP30 support on the Strategy and Support Center (SSC) here.

SeekingAlpha disclosure: I am long google and ebay.

Read more:
FP30 is born!

This weekend, a Barrons article cited a report by an investment research firm, Wedge Partners (Brian Blair and Ryan Hunter) that says eBay is planning a 1500 person layoff.

Reuters has re-reported the story as well here. The big question I'm hearing from ChannelAdvisor customers and readers is: What will eBay layoffs mean for sellers?

Where are the people?

With 16,000 people in the company this would be a < 10% reduction.  Given that eBay hasn't really gone through this before, I'd guess this can be done with little to no impact on operations. 

To understand the impact on sellers, we need to think about where the cuts will/would come from.  While eBay doesn't report a break down of the 16k, we can guess where the pockets of people are.  If you peel the onion on eBay you have:

• Paypal - Paypal is the crown jewel of eBay and has grown substantially head-count wise over the last years. Here's where the people are:
  • Paypal has the business people in San Jose at their own campus (view on gmaps)
  • Paypal has tons of customer service/fraud prevention people in Omaha/Salt lake.  I don't think it would be prudent to do anything here given the busiest season starts now.
  • I'm going to guess Paypal has limited business people internationally, but probably big fraud prevention teams in their customer service center.
• Skype - Skype is probably a 1000 person company at this point and given that it's the fastest growing part of eBay.
• eBay marketplaces -
  • I'd guess that 8k of the 16k people are at eBay marketplaces and housed at the 'mother ship'.
  • 2125 Hamilton is the home of eBay Park which you can tour on gmaps with their cool 'Street View' (click here, zoom in and select street view - look to your left for the 4 buildings by starbucks and to your right for the other 4.)
  • With 8 very large building's I'd say there are a good 4-6k people in that park.  This report from 2003 cites 1500 out of eBay's total of 4200 at the time, so I'd imagine that number has more than doubled in the last 5 yrs (wow - eBay's headcount has gone up 4X since then!).  So let's say 5k in eBay Park
  • That leaves 3k that I' would say are about 1000 international and 2000 in Salt Lake.
  • The international offices are run pretty lean with most functions being supported out of the US (engineering and admin for example).
• Misc
  • There are small offices in LA, SFO and a variety of other places from acquisitions (StubHub, rent.com, etc.)

Where are layoffs likely?
This is all speculation on my part, but logically it seems like it wouldn't be prudent to do anything at Skype, Paypal or places like Stubhub that are big growth drivers. Thus you're left with eBay marketplaces which is the anchor to the conlomerate and should bear the weight of any downsizing.

Within eBay marketplaces, I don't think International has room for much change, therefore you're left with the 2k people in SLC and the 5k people in SJC.

This is where it gets tough.  Ebay has talked up the benefits of increasing customer service and TnS staff in SLC with Wall St.  That could make it hard PR-wise to cut there.

That leaves 5k in SJC at the most risk IMO.  If the 1500 were localized to that group, what looked like 10% now becomes 30% which is pretty deep and risky.  In eBay Park you have:

• Lots of 'admin' - finance, hr, legal.  I think one whole building floor is just legal.  With eBay's legal issues though, this could be an area that's hard to reduce.
• Seller experience - possibly impacted
• Buyer experience - probably not impacted as eBay doesn't want to be seen underinvested in such a strategic area.
• Marketing - probably impacted.  With eBay spending less and less on marketing, there are probably big reductions that could be made here
• Engineering - most of eBay's R+D is done in SJC with some pockets outsourced to India and other places.
• eBay Motors - Motors seems to replicate lots of the functions at other parts of eBay.  I'd guess lots of synergies could be found by undoing all of this duplication of effort.
• CS+TnS - eBay has some functions like community, customer service and trust and safety with some headcount in SJC that largely creates policies for folks in SLC.  There maybe room there to trim as well
• Middle management - eBay has lots of VP, Manager, Director level people that JD may look at eliminating as a way to streamline decision making.  Most eBay employees are at least 5+ layers away from JD which seems ripe for

  bureaucracy.

What's all this mean for sellers?

If I'm wrong here and SLC is hit with the bulk of the layoffs, that's where 90+ eBay TSAMs are (Top Seller Account Managers).  That would be bad for sellers as that group is the lifeline a seller has into eBay.  However, if customer service or trust and safety in SLC are decreased that wouldn't directly impact sellers, but it could hurt the buyer experience (which is why I don't think it will be an area that is touched).

Seller development is at risk, but I think it's a smaller group so probably not something that would be cut deeply.  Any admin, marketing or other cuts are likely to not

All in, I'd say there's a low (10-20%) that any reductions would impact sellers, but until we see what eBay does, it's all a guessing game.

SeekingAlpha Disclosure: I am long Google and eBay

Original post:
eBay layoff - impact on sellers?