| June 03, 2009 |
 Is eBay Turning the Corner? |
| By: Ina Steiner |
| Wed June 3 2009 10:20:31 |
A Wall Street analyst upgraded eBay, writing in a research note that eBay's current stock price largely reflects the fair value of its Payment business but not the Marketplace business, which is now "showing many evidences of turnaround."
Sandeep Aggarwal, Senior Internet Research Analyst at Collins Stewart LLC, said based on the company's detailed proprietary study, that although eBay still has a long way to go, the signs he has seen so far are extremely encouraging.
We believe eBay has been - 1) improving its Search for the best match favoring merchants with higher DSR (avg. 4.82 in our study), 2) dramatically increasing the penetration for free shipping (at least 35% but 83% for best match) by offering incentives, 3) standing behind buyers using PayPal in case of any fraud/legitimate returns, and 4) increasing selection by implementing series of fee structure changes (higher # of listings vs. AMZN in our sample survey).
It's interesting to note that while eBay said during its Analyst Day in March that it was not a retailer and was focusing on Secondary Markets, Wall Street continues to compare eBay head-to-head with Amazon.com.
Aggarwal seems especially impressed with eBay's actions with regard to free shipping. He believes that while the discounts eBay is offering PowerSellers who offer free shipping will affect margin in the second half of 2009, on a long term basis it will benefit eBay since it causes sellers to increase listing price, causing GMV to go up. (eBay takes a commission on the selling price but not on shipping costs.)
Aggarwal ran a proprietary study to evaluate the progress of the changes eBay has been implementing; the study was based on multiple sample tests to evaluate the progress for free shipping, search, and selection. About eBay's actions to encourage sellers to offer free shipping, he wrote:
Our findings, as of the beginning of June 2009, indicate that free shipping has seen good traction and acceptance among merchants. Overall, we believe, based on the results of our study, penetration of free shipping is at least in the mid 30%, though more likely mid 50% (esp. for listings actually converting well) and has shown a notable increase from the 30% in Q1-09 and low single digits in 2008, as per eBay management.
He also wrote he sees eBay making progress in Search:
We realize that search still has a long way to go (for example smaller things such as a misspelled word is not recognized by the engine and does not produce any response) but we also give credit to management for the efforts and the progress they have made in improving relevancy of results and promoting quality merchants.
And while he appears to recognize that eBay's definition of "increased selection" is too simplistic (in January eBay said number of new listings was evidence of greater selection), his test compared current keyword searches on eBay to Amazon instead of comparing current results on eBay to those on eBay before the changes. (See page 7 of the report, "Progress on Selection.")
Aggarwal's report focused on exactly what eBay has been messaging to analysts, and it appears he believes eBay's arguments on why these changes to Trust & Safety, Search and Selection will turn eBay's Marketplace business around.
We believe that all these changes translate into higher listing conversions, GMV growth higher than listings growth, higher realized dollar value per listing for EBAY, and more satisfied buyers/sellers. We are increasing our est. and believe that Street will likely follow. EBAY now offers a visible path to growth acceleration (beyond just economic recovery) & margin expansion, in our view.
You can view the full report in this PDF file on the Collins Stewart website, where you can also find disclosure and disclaimer information.
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