On Monday, eBay President and CEO Jamie Iannone and CFO Steve Priest presented at the Morgan Stanley Technology, Media & Telecom Conference.
Just like earnings calls after quarterly financial reports, these investor conferences provide additional insight into eBay’s business. While the discussion is targeted at investors, there can be bits of information that trickle out that may be of interest to sellers.
Throughout most of the 30-minute discussion, Iannone and Priest made their case that the strategy of concentrating on enthusiast buyers and focus categories is showing positive momentum for the business.
For the past couple of years, eBay has been focusing its turnaround efforts on higher-priced and higher-volume categories such as premium sneakers, luxury watches, luxury handbags, fine jewelry, refurbished products, trading cards, and vehicle parts and accessories (P&A).
The company believes that these categories bring in new higher spending buyers — they’ve dubbed enthusiast buyers — that will not only make repeat purchases within the targeted categories but also purchase in the other “non” focus categories.
Iannone said that across all eBay marketplaces, which includes all eBay country-specific platforms, focus categories comprise about 25% of the business now. In the top three marketplaces — eBay.com (US), eBay.co.uk (UK), and eBay.de (Germany) — focus categories represent 28% of the business on those three marketplaces combined.
In addition, Iannone noted that eBay’s Customer Satisfaction (CSAT) score in focus categories has been increasing by double digits, which again, should mean more repeat business from buyers.
He added that the company’s long-term goal is to have focus categories make up half of eBay’s overall business. Iannone also revealed that “we have five categories that are over $10 billion” in GMV.
But if focus categories are only about 25% of the GMV globally today, that means 3 or 4 big categories are not focus categories, as the overall GMV for 2022 was $73.9 billion.
His remarks are a bit confusing because if true, why would eBay not make those categories focus categories as well? It’s always easier to grow a category where you already have buyers.
Another interesting factoid Iannone divulged is that 90% of eBay’s traffic comes from organic or free sources, meaning the company only pays for about 10% of its traffic. Estimates from SimilarWeb, a web analytics company, seem to validate this claim.
Despite what some sellers may think, this seems to validate that the brand is just fine and still has the draw to bring in buyers without needing excess marketing dollars to drive traffic.
Unfortunately, during the presentation at the conference, Iannone continued to bewilder everyone on what defines an enthusiast buyer.
In the most recent earnings call, I lamented again that eBay seems to shift the definition of enthusiast buyer by cherry-picking certain metrics that make it hard to compare growth from quarter to quarter.
Well, Iannone doubled down on this muddiness during this conference by first saying an enthusiast buyer is one that shops on eBay more than six times per year, spending over $800, and in total, represents 70% of GMV.
And not even a minute later, he stated, “these are people [enthusiast buyers] that spend over $3,000 a year. They shop 30 times on the year, 90% of them shop in a focused category. So, it’s absolutely where we should be focused from a buyer perspective.”
I really would like eBay to stick to one definition because right now, it seems they are playing a shell game. While it’s theoretically possible that both metrics mentioned are right, let’s not call both by the same name of “enthusiast buyer.”
Another interesting comment Iannone made is that trading cards were helped by Covid-19 pandemic-era stimulus payments.
This seems to suggest the category’s growth may have slowed since the government stopped giving away money. He did not further elaborate, but if true, this should give trading card sellers some pause.
eBay Seller Fees
Sellers are always concerned about fees and usually when eBay makes adjustments to their fees, that typically means sellers end up paying more.
It’s been a concern for a while now that eBay seems to be trying to find new ways to raise its revenues by increasing its ‘take rate,’ leaning too much on squeezing out more revenue per sale.
In financial terms, the ‘take rate’ eBay talks about is the percentage of all selling fees collected — including insertion fees, listing options fees, subscription fees, final value fees, advertising fees, etc. — divided by GMV.
At times, eBay may reduce or eliminate certain fees to gain market share, but will raise fees elsewhere to compensate for the loss of revenue.
Iannone confirmed this strategy: “[W]e constantly look at take rate as a way to say, what’s an opportunity to lean in or to grab more take rate.
“And so through take rate changes there, we’re able to actually lean into a category in a specific market because we’ve been leaning into Germany with things like putting Klarna, a specific payment method, launching tire installation first in Germany.”
In Germany, eBay just launched a new program that enables private sellers to sell items on the marketplace for free. The justification for eliminating its basic selling fees is to get more consumer-to-consumer (C2C) activity on the German platform.
Why does this matter, especially if they don’t collect basic selling fees?
According to eBay Germany’s announcement, a private seller (C2C) on eBay is twice as likely to buy more on the marketplace versus a buyer that doesn’t sell.
And that increases the chance significantly that a German C2C seller uses the proceeds from their sale to purchase products from a business seller on eBay, where the company collects fees.
Steve Priest further explained this strategy: “So, if I look back to the fourth quarter, our overall take rate was 13.8%. So pretty significant take rate.
“These investments that we’re making in Germany is around 10 basis points. So, it gives you a real sense of our ability to look at monetization through ads and payments, and other opportunities as we look at it on a global scale.
“And even with these investments we’re making in Germany, we will continue to see and expect take rate expansion as we navigate our way through 2023.”
If successful in Germany, might eBay expand this strategy to other marketplaces? That could have the knock-on effect that it could also raise active seller and buyer numbers as well as GMV.
But as both already said, they are also looking to increase the take rate, so that would mean someone has to pay for this strategy, and that would fall on business sellers.
Steve Priest also commented that the new eBay International Shipping (EIS) program changes how eBay will account for shipping revenue and costs in its financials.
On the surface, this seems to be an accounting change, but Priest later effectively admitted it could become a source for increasing net income or the take rate.
“[H]istorically, we used to be an agent, i.e., the revenue will be offset by the costs associated with running that. With us being the principal, we both recognize the revenue and we recognize the cost.
“And so this is a great opportunity for us to drive additional net income, which is obviously great for our business and great for our shareholders.”
Iannone added that about 20% of eBay’s business is cross-border trade, but less than half of listings are “currently available to be exportable. So, the whole point of eBay International Shipping is to unlock the other 800 million listings to cross-border trade.”
What the latter means for sellers is a bit unclear.
Will eBay automatically add listings into EIS or turn on international shipping by default because sellers are shipping domestically to a warehouse from where the package is forwarded to the buyer, or will sellers still control where they are selling?
Frankly, I feel Iannone’s words suggest sellers might be “voluntold” into the EIS program.
Iannone also discussed its new Buyer FX (Buyer Foreign Exchange) platform which drives additional revenue for the company. Buyer FX really was made possible because eBay manages payments now, but even with PayPal, international transactions were more costly.
Of course, now eBay gets that fee and is able to include that in the take rate. For those sellers not accustomed to selling to international buyers, there are additional fees that eBay charges, as outlined here.
The reason I mention this here is that if eBay coerces sellers and listings into EIS, sellers may see higher selling fees from international sales, even though they are shipped to a domestic address that is part of the EIS program.
AI seems to be the buzzword now with ChatGPT in the news almost daily. Obviously, machine learning or AI has been around for a long time, and some would just say it’s a new fancy word for algorithms.
Anyway, eBay has been using machine learning for years to drive search results. The marketplace was also one of the first ones to introduce image search on an ecommerce site, made possible by “AI.”
Iannone said: “Some of my favorite days of the days I meet with our AI teams because they are just working on some amazing stuff. So, AI isn’t new for eBay. When you think about the scale of eBay, we use AI in almost everything and machine learning in almost everything that we do on the platform.”
With eBay having more than 1.7 billion listings that include over 10 billion images, the company’s newly updated image search can help buyers find exactly what they are looking for, while sellers can use their smartphones to get comps on products.
I liked the image search function from day one. I think this was one area eBay really led the way.
AI today touches almost every part of the business, Iannone concluded, from advertising to search to selling. Let’s see how this “amazing stuff” will change the marketplace and what that could mean for sellers.
There weren’t any earth-shattering new revelations during eBay’s presentation at the Morgan Stanley Technology, Media & Telecom Conference.
Iannone and the management team are trying to fix a marketplace that has been in turmoil for a while, and the focus category and enthusiast buyer strategy are fundamentally sound.
I would also expect some “rightsizing” in buyer and seller numbers while the strategy is being executed as the cohort in both groups changes.
Unfortunately, what continues to be unclear to me is how well it is truly working. I haven’t seen any evidence in the overall financials that point to the successes eBay has been claiming.
Just this week, an article titled, “eBay Is Looking Like Dead Money” was published by Seeking Alpha contributor Gary Alexander, who follows tech companies, that seems to suggest investors are equally confused about the direction.
“For any ecommerce platform, GMV is the bread and butter of growth. eBay’s GMV has been declining in the post-pandemic period (though still slightly up versus 2019), as consumers have taken their purchases to other sites,” said Alexander in his article.
I think everyone understands declining GMV last year from macroeconomic factors as most of the world exited the Covid-19 emergency. Let’s face it, Amazon’s retail business is also struggling a bit.
eBay has already warned that GMV will continue to decline in 2023 at a comparable rate to 2022.
Yet, eBay’s management keeps saying that these new enthusiast buyers are driving sales in other categories. But when GMV continues to decline, it’s a bit hard to swallow the positive statements at face value.
I would really like eBay to definitively define an enthusiast buyer and break out more numbers related to these buyers to show the progress of the strategy.
And this is where my primary concern lies, why the lack of transparency?
I think being more forthcoming on some specifics that can be measured from quarter to quarter would help both investors and sellers better understand the progress of their strategy.
Iannone said they are striving to grow focus categories to about half of the business. So, that means they effectively will need to double GMV in the focus categories.
Given that direction, this is where eBay is placing most of its resources. So, it would make the most sense for sellers to focus on those categories as well, as that will be the entry point for new buyers.
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