While looking at different pieces of news about the stocks that I follow, I ended up on this piece of analysis done by Barclays where Ross Sandler explains that he expects 2017 to be a turnaround year for EBAY. Really? I had strong doubts but I did decide to do additional research. He blames EBAY’s struggles on 2 main reasons:
-losing market share to Amazon
-customer security concerns following a 2014 data breach.
He also explains that EBAY is better positioned now that it puts more focus on fixed pricing sales and also compares the struggle to what Expedia (and I’d add Tripadvisor) lived when they made significant technology models. Finally, they also declare Stubhub to be a significant source of revenue with potential contributions of up to $1B in 2018.
Data Breach Impact Is Overblown
I personally consider the 2014 breach impact to be overblown at this point. It did have an impact of course but I’d argue that many others have had similar issues and that it’s been over 2 years. Customers that are still not comfortable with EBAY will likely not become so anytime soon. I personally don’t buy it.
It’s All About Amazon
The other main point, Amazon is the overwhelming factor that will determine EBAY’s success in my opinion. As I wrote in my most recent piece about Amazon, I am a skeptical that EBAY even has a shot at competing. Yes, the ecommerce pie is growing quickly but so is Amazon’s share of that pie. Why? Because it’s business model is unlike any other competitor.
One benefit that EBAY has compared to Amazon is that given its business model is based off of being a true middle man. When EBAY clients buy items, they end up paying the seller and receiving the item directly from the seller. That means EBAY has very little true fixed costs. EBAY collects a fee from the seller and if the volume increases 5-10% or much more, EBAY will collect that much more.
The downside though is that EBAY has much smaller control on the overall customer experience. A big part of that is shipping of course and that makes a world of difference. Take a look at this chart of where consumers now start their shopping searches:
Amazon is increasingly dominant and that is because not only does it have incredible customer service but its shipping service is heads and shoulders above everyone else. As eBay announced it was working on getting guaranteed 3 day delivery on 20 million of its items, Amazon continues to work on expanding its same day and even 1 hour delivery. They’re obviously operating at completely different speeds and that makes a world of difference for customers.
Another critical space where Amazon is gaining an advantage is through its Prime service, one of its booming sources of revenues. Yes, Amazon is incurring costs for the services it offers to those customers such as cloud storage and video offerings. That being said, it is also a big part of the reason why tens of millions of the more valuable consumers shop with Amazon as a default. All of that market share is adding up in terms of overall shipping costs but its helping Amazon get closer to its customers through new warehouses, scale in operating its own fleet of planes and freight ships and will in theory mean that its shipping costs/unit should decline over time as it gains more scale. Ebay on the other hand does not have such ambitions or plans to get there. The other benefit of course is gaining leverage over suppliers in trying to dictate terms and products offered but also gaining more data than anyone else about its customers to offer a more tailored experience when they do visit the website.
eBay Can Survive But Not Thrive
In the end, my opinion is that while eBay will obviously continue to exist and will do well with some segments such as Stubhub, I do expect the company to continue losing ecommerce market share for the foreseeable future as will be the case for most of Amazon’s competitors given the current positioning. That makes it eBay a tough buy at these levels.
Disclaimer: Currently hold a short position on EBAY