eBay Active Buyer Retention Problem

My View: eBay Active Buyer Losses Are Worse Than They Admit

eBay lost 2 million active buyers last quarter, but they are okay with it, says CEO Jamie Iannone during the earnings call this week discussing the company’s second-quarter financial results.

eBay revealed active buyers in the quarter declined by 2% to 159 million global active buyers, year-over-year (YoY). eBay defines an active buyer as a customer who successfully completed at least one transaction in the last 12 months.

Like most other online commerce marketplaces and retailers, the number of active buyers on eBay jumped tremendously in the second quarter of 2020 due to COVID lockdowns imposed by governments worldwide.

But are those buyers sticking around on eBay? I don’t think so and I believe the number of active buyers the company lost is larger than they said during the earnings call. Let me explain.

The Korean Business Unit Impact on eBay Active Buyers

First, we need to deal with the Korean business unit’s impact on active buyers since eBay sold that business and declared the Korean business unit a discontinued operation. This means starting with the 2021 second-quarter earnings report, eBay adjusted comparative financial data to exclude the Korean business.

This is an acceptable practice when companies have significant events that could skew proper comparisons between quarters by re-adjusting comparative data. This helps investors better understand a company’s current operations.

In fact, eBay filed new financial data with the SEC for nine previous quarters that excluded the Korean business unit just for that purpose.

While the new financial information included the required data, it did not adjust the number of active buyers the company had during those quarters. That metric, along with a few other metrics the company discloses during earnings reports is “Supplemental Operating Data.”

Many investors and analysts use this supplemental operation data from eBay to better understand the company’s operations. Other publicly traded online marketplaces also provide such information for comparative purposes.

Since eBay didn’t break out the number of active buyers on its Korean business unit, I looked at the previous four earnings reports and then compared the reported numbers to the “new” numbers from the last earnings report.

QuarterOriginally Reported NumberNewly Reported NumberDifference
Q2 2020182 million161 million-21 million
Q3 2020183 million163 million-20 million
Q4 2020185 million165 million-20 million
Q1 2021187 million166 million-21 million
Q2 2021Not Applicable159 millionNot Applicable

The table reveals the difference between the two sets of numbers is pretty consistent, around 20 million per quarter. This is important because it’s been widely believed eBay’s business in Korea had become stagnant due to market pressure from rivals in the country. Having a consistent active buyer base would not be a surprise under those conditions and therefore I believe the most likely reason for the difference between that set of numbers is the Korean business.

The COVID Impact on eBay Buyers

Let’s take a look at how the COVID pandemic impacted active buyers on eBay and to do that I need to introduce a new number not in the table above.

In the first quarter of 2020, eBay reported that it had 174 million active buyers on its platform. From Q1 2020 (174M) to Q2 2020 (182M), eBay gained 8 million active buyers during a time when the world went on lockdown and many shoppers quickly shifted to buying online.

Now looking at the same two quarters for this year (2021), and using the adjusted numbers the company provided in its latest earnings report, eBay said it had 166 million active buyers in Q1 and 159 million active buyers in Q2, for a loss of 7 million active buyers.

Because the active buyer number is a trailing 12-month number, this comparison suggests eBay lost almost all active buyers it gained last year during the early stages of the pandemic.

To illustrate, a buyer that bought one item in April 2020 would have been counted as an active buyer in Q2 2020, Q3 2020, Q4 2020, and Q1 2021. But that buyer would no longer be considered an active buyer by the end of Q2 2021.

eBay acknowledges it’s losing Active Buyers but used a different comparison.

eBay soft peddled the impact of the COVID pandemic on active buyers by making a year-over-year comparison which it said resulted in a loss of about 2 percent of active buyers.

For those of you good at math, you may immediately realize that 2% would really mean a loss of 3 million active buyers, but the active buyer data eBay reported shows a difference of 2 million (161M vs 159M). Remember, we are dealing with round numbers here and I believe eBay just rounded up the percentage for simplicity. So, we’ll let that one go.

eBay’s use of a YoY comparison is not really wrong because when looking at financial performance, it’s often best to use comparative accounting periods.

Most businesses experience a similar business cycle from year to year. During one period they may have stronger sales (ie. holiday season), while during another period, sales may be slower.

eBay is no different in that regard and this is why making a YoY comparison is fine. But in this unique period of time, I believe it doesn’t tell the whole story.

What Does eBay Say About Losing Buyers?

Since even the YoY comparison showed a loss of active buyers, eBay had to address this metric during the earnings call. It did stand out and came up several times.

eBay CEO Jamie Iannone seemed to deflect from the negative metric by saying the company is focusing on high-value buyers, which are buyers “that are buying over $800, buying six times a year, or buyers who sell.”

Iannone explained high-value buyers represent 20% of all buyers and account for 75% of the company’s GMV while 50% of buyers only contribute 5%. He said eBay was purposely moving away from low-value buyers to secure long-term growth from high-value buyers.

“I’m excited to say that their GMV is growing, they are growing as a population and more and more you’re going to see us doing things to drive that longevity because we know the things that move buyers up the cohort curves into long-term buyers.”

He also said, “we’re really focused on the first 90-days of the customer and getting them up their lifecycle,” suggesting that internal data must show that if a buyer doesn’t make at least one repeat purchase within that time period, they are likely not hanging around.

So, they acknowledged the loss of active buyers by saying it’s part of their strategy to focus on high-value buyers. Hmmm…

My View

There really isn’t anything wrong with a strategy that focuses on quality versus quantity. But it doesn’t address the apparent issue that eBay is having a hard time keeping buyers engaged on the platform.

eBay lost about as many active buyers this second quarter as it gained last year during the same quarter when shoppers flocked to online retailers to buy products because of local lockdowns and personal safety concerns.

I think my interpretation of the active buyer data shows many active buyers eBay gained during the early months of the pandemic just made one-time purchases and didn’t come back. That’s a concern!

If eBay wasn’t able to hold on to a significant portion of those buyers, how does the company believe it can do better after it lost them?

I hope eBay doesn’t believe every high-value buyer will stick around forever, that is unrealistic. eBay has to bring new buyers into the high-value buyer fold to make up for losses in that cohort.

That journey has to start with retaining buyers first and that seems to be the real weak link right now.

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