Wednesday, April 16th, 2008
A few minutes with eBay Inc. CFO, Bob Swan
eBay Inc. announced first quarter earnings results earlier this afternoon and I managed to get a few minutes of CFO, Bob Swan’s time on the heels of the announcement. I had 8 questions prepared for my discussion with him. Unfortunately, my 6 minutes and 30 seconds only allowed us to go over 3 of my questions and 1 provided by a reader to eBay Ink.
Here is the resulting conversation:
Q. We rolled out a lot of initiatives this past quarter – some directly effecting buyers and sellers pretty significantly. As a result, there was talk of a boycott; a strike. But we had a very strong financial quarter so is the jury still out on the impact any kind of boycott had on the business?
Well, you’re right, we had a very strong financial quarter. Revenue grew 24%, earnings grew 26%, and cash flow grew even stronger. All of this was better than expectations and we developed momentum over the quarter primarily due to the changes we announced back in January. Those changes were really geared toward improving the buyer experience on the web and aligning it with our very entrepreneurial seller community. As John indicated, one of the wonderful things about our business model is that we have a very passionate and vocal community that gives us feedback upon which we can react, adapt and change.
The community reacts in a lot of different ways. We’ve received a lot of good feedback and made some changes along the way and are committed to moving forward. The intention is that we improve the overall buyer experience on the site which in turn grows our seller’s businesses. I think we all have the same objectives here. We all want to grow our collective business to do what we have to do to create a better buyer experience. The good performance of our first quarter is a great reflection of that.
Q. I couldn’t help but notice that even though Skype is our lowest earner ($126MM), it is our most aggressive earner at 61% year-over-year growth and, with more than 309 million users around the world, it now has the largest user base of any eBay business. What does that mean long-term? Is that growth sustainable?
Skype is a four year-old business and its growth rate is nothing short of incredible. It represents a massive user base benefiting from one of the things that made eBay and PayPal so great – network effects. One user brings another user who brings another user. From that you have a rapidly growing community of users getting more and more engaged with the service. After 4 years, 309 million users is an amazing accomplishment by the Skype team.
Our focus now is on improving the user experience; enhancing the ability for them to communicate through high-quality video; expanding the number of devices you can use when you’re away from your desktop so that Skype is more mobile in its application.
The implication for Skype in the future is about as big as our dreams can make it. Our challenge is in prioritizing and executing on those dreams so we can continue the trajectory we’ve experienced over the past couple of years.
Q. One of the goals of eBay Ink is to improve transparency between our company and its constituencies. On the call, you referenced a revenue reclassification that improves transparency. Can you talk more about this?
As our business has grown and evolved, we generate revenues in different ways today than we did two years ago. The change to our revenue classification provides more clarity for our constituency of users. There are three operating metrics that we focus and communicate on: Gross Merchandise Volume (GMV) for Marketplace, Total Payment Volume (TPV) for PayPal, minutes for Skype. Our primary objective here is to highlight the revenues that are generated from those operating metrics to be clearer as the business evolves.
Secondly, we’ve invested in a variety of what we call adjacencies to explore new ways or formats to monetize our sites or new formats as buyer’s needs change. Things like Classifieds that has a huge presence around the globe and is getting bigger everyday. That site is monetized in different ways, through advertising-based fees. So we try to separate how we monetize our different businesses between transaction-based (which is historically how we’ve done it) and the newer ways we monetize which is through advertising referrals. That is what the classification is about; to give investors more transparency to the operating metrics and the revenues that drive them.
Q. Well, I’ve been asked to wrap it up but we did get one question on the blog after I posted the earnings release so I wanted to make sure I asked it while I had your time. “I’m not experienced in reading the numbers mumbo-jumbo. Would like to know how auctions (overall and US alone) made out this quarter as opposed to the same time last year.”
So, our overall GMV growth was 7% and that growth rate is a function of our auction platform and our fixed-price platform. While we don’t provide specific numbers within the US, we do see that fixed price continues to grow faster than our auction-based platform and the combination of the two drives our GMV.
Tagged: , cfo, earnings, ebay, ebay inc, executive interview, financial results, financials, interview, kijiji, paypal, skype, stubhub
Randy SmytheOn 04.16.2008 at 6:58 pm Said:
Richard,
Active User growth in the Marketplace biz is stagnant at 1% Y/Y, I believe new active users are still coming to eBay, so it appears existing users are disengaging at roughly the same clip as the new users sign-up.
According to Marketwatch “… In the first quarter [2007], active users were up only 1% compared to a year ago. In the December quarter, active users grew 2%, 4% in the September quarter, and 7% in the June quarter. A year ago, in the March, 2007 quarter, the number of active users was up 10%.
This is a global number and I’m guessing that many International markets are still seeing double digit Active User increases Y/Y.
I can’t see any way that Active Users are not declining on the US marketplace. Slow growth is one thing, but declines in Active Users are not a good sign.
Are US Active User numbers declining Y/Y?
In the past, the response to that question would be “we do not break out Active Users for each marketplace”.
A simple yes or no would suffice.
CrunchyPostingGoodnessOn 04.16.2008 at 9:57 pm Said:
The main problem with these figures is that it represents the money that eBay took in, but is that reflective of what sellers took in?
For instance, if a buyer pays for and receives the item, yet performs a charge back, the seller is out their money, yet eBay retains all of their fees collected.
If a buyer files a Significantly Not As Described complaint, simply because they have remorse and wins the dispute, the seller loses their money, yet eBay retains all of their fees. Then the seller must hope that at least the buyer sends back the same item, in good condition, so they can re-list it and the seller has to pay listing fees a second time.
If a buyer claims an Item Not Received, simply because the post office made an error in not scanning the package, the seller is out their money, item, and still eBay retains its fees.
A buyer leaves negative feedback for a seller who refused to lie on a customs form by marking it as “gift”, hurting the sellers ability to sell successfully, and possibly have their funds held in the future, yet eBay keeps its fees.
My worry is that eBay is primarily concerned with getting more buyers(numbers only), yet it seems to care very little as to exactly what type of buyers (quality)are attracted to the recent changes. The fact that eBay is making more money means very little to me as a sign of success. It simply means they are collecting more fees. What would impress me more is the number of complaints and reports from sellers during that time period.
If the sales were higher and the number of reports and complaints lower, then that would impress me. However, if there is no change in the number of reports, or better yet an increase during that time period, then I would see that as a cause for concern on the part of sellers.
Perhaps someone would be able to provide a comparison of those values in relation to one another during the time period being discussed?
MechelleOn 04.16.2008 at 10:14 pm Said:
How is active defined? Active in the past year, 2 , 3 decade? What about the last 2 months- it certainly doesn’t feel as active and certainly not more than January and most of February
FreddyOn 04.17.2008 at 12:29 am Said:
Actually, if you take the time to look through the actual earnings release/slides, you will see that active user growth is up 6% from last year when you exclude China/Taiwan (which is now its own operation). This means active user growth in the markets that really count (US, UK and Germany) has stabilized and is even starting to increase. This is great news for sellers.
Chris @ TameBayOn 04.17.2008 at 12:41 am Said:
Bob dodged answering your first question re the strike quite nicely then? :-p Did the it or did it not make a difference?
Or am I being a bit harsh and he did answer it meaning: The strike was “a lot of good feedback” or in other words it was so insignificant we were aware of disgruntled sellers but it made no discernable difference to the bottom line?
JamesOn 04.17.2008 at 6:19 am Said:
What I don’t understand is why Ebay is fine with not getting new users. They’ve publicly stated that they have “enough” buyers, and are just trying to figure out how to get them to spend more.
How does ebay plan to sustain the 1q numbers without growing active users? I fear that all the new changes we are seeing are a short term fix to bring the stock back up and make the company attractive to a buyer.
KarlOn 04.17.2008 at 11:50 am Said:
“he also indicated that the strike made no real difference to the bottom line because eBay had such a strong financial quarter.”
Finical analyst are reporting that eBay.com,the core auction site had little to do with the strong Q1 showing.
Investors evidently has drawn the same conclusion.
Time will tell if the changes will have any significant positive impact.
Like most situations,it can be viewed from several different angles.
….for instance,if the strike had not taken place eBay could have had an even stronger Q1.
Randy SmytheOn 04.17.2008 at 12:21 pm Said:
@Michelle
Active Users are defined as: (Source 2007 eBay Annual report)
“All users, excluding users of Half.com, StubHub and Internet Auction Co., our Korean subsidiary, who bid on, bought, or listed an item within the previous 12-month period. Users may register more than once and as a result, may have more than one account.”
@Freddy, that 6% number could just as easily be pulled from a hat. We don’t have the base numbers for China and Taiwan and if you look at last years Annual report they weren’t even mentioned in the Active User numbers.
Patricia 1On 04.17.2008 at 3:29 pm Said:
“However, one of my 5 outstanding questions was if it didn’t have any real impact on Q1, is it realistic to assume that we could see the impact of it in Q2?”
And what about the upcoming May boycott?
Chris @ TameBayOn 04.17.2008 at 4:21 pm Said:
@Patricia1 I’d be surprised if the expected May boycott makes much of a difference either. It’s not that a few (and in the grand scheme of things it is likly to be only “a few”) sellers won’t list, but there are so many variables it’ll be nigh on impossible to attribute an up or down in figures to a strike.
MechelleOn 04.17.2008 at 7:28 pm Said:
There doesn’t need to be a strike to see significant decrease in revenue- they have best match- it’s doing the job on its own
Patricia 1On 04.17.2008 at 8:32 pm Said:
Chris - yes, I’m sure. Along will come another listing special… I did boycott in Feb. but won’t in May - instead from Feb to May I made it my business scope out other venues and to start listing on other sites besides ebay. Sellers made the mistake of putting all their eggs in ebay’s basket, we need viable alternatives and I guess this is the only way to do it. I think we’re all finally wising up.
Chris @ TameBayOn 04.18.2008 at 3:32 am Said:
Patricia - Going multi-channel is probably the single best thing that a seller can do to protect their business and that also protects eBay’s business. As you becomes a part of a larger operation it becomes easier to ride the highs and lows of eBay change, instead of potentially affecting your income so much it kills you outright. Good for you, but also (in the long run) good for eBay.
wandaOn 04.18.2008 at 4:08 am Said:
My take from Mr. Swan’s perfunctory, can’t really be bothered with all this nonsense, I’ll give you two minutes, response is: Ebay is still passing out the corporate KoolAid. Sellers may expect the same short shrift they’ve become accustomed to. We’ll continue to lie and spin this anyway we want to and may even do so when our active users base dives into negative, which, undeniably will be next quarter.
Ebay has the same approval rating as George Bush about now. Many alternate auction sites are seeing unprecedented growth, yet Ebay blames their woes on the economy. If they do get with the program, they will still leech users as they have done nothing to garner loyalty and everything to destroy any iota of trust they might have had.
JJHOn 04.18.2008 at 4:40 am Said:
@Patricia1
So how have your sales been at other venues?
I’m been looking at a number of them too, but I haven’t listed on any. I don’t see the traffic, I don’t see any items being bought, and I don’t see the type of items I sell even listed there. So why would anybody be looking for them? The one site everyone raves about wants money up front for the privilege of listing. I can’t afford to throw good money out for bad, not even with an experiment.
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