EBay just can't get a break
Posted
Oct 16 2008, 02:27 PM
by
Kim Peterson
Rating:

EBay shares fell 8% after the company reported earnings and became the poster child for all that is wrong in retail. (They bounced back to close down 2.4% loss Thursday.) The results are "a harbinger of things to come for consumer-facing businesses over the next several weeks of earnings season," a Stifel Nicolaus analyst said yesterday.
Really? Let's take a look.
Quarterly sales rose 12% from the year-ago period to $2.1 billion. Operating margins ticked higher. Free cash flow rose to $543 million from $510 million a year ago. The company swung from loss to profit.
Other companies would be happy to get these results in the next few weeks. But not all is well at eBay, which is why analysts are all doom-and-gloom on the company right now.
The most glaring problem is that gross merchandise volume -- the value of everything that was auctioned -- skidded to a 1% decline over the quarter. GMV saw a 14% gain a year ago, but over the past year has been slipping to 8% growth. So a 1% decline is pretty significant.
A less obvious, but just as serious, problem is that eBay is structurally flawed. The technology platform and user experience need serious work, and though the company is tackling the issue it's not doing it fast enough. Pages are cluttered and search results are confusing. There isn't enough product information, and seller comments like "WILL EXPORT! 8% LIVE.COM DISCOUN IN STOCK INVENTORY!" make it clear that eBay can't shake off its flea-market sensibility.
Compare eBay's user experience to Amazon's. No, don't. There is no comparison.
This has been a tough and distracting year for eBay. The company has rolled out major policy and fee changes, suffering harsh criticism from buyers and sellers. It's in the middle of an internal restructuring, which, coupled with a ruthless economic downturn, is hurting the company more than anyone expected.
All of which led eBay to issue a gloomy fourth-quarter forecast. EPS will be in the range of 39 cents to 41 cents, far below analysts' expectations of 48 cents. And eBay said revenue would be between $2.02 billion and $2.17 billion. Analysts were looking for $2.42 billion.
EBay just announced layoffs of 10% of its workforce, which will only compound its internal problems, at least in the short term. Why eBay even had 16,000 employees in the first place is mystifying.
But I see two bright spots. The first is the PayPal financial unit, which saw a 27% revenue increase in the quarter to $700 million. The second is that the overall fundamentals still seem pretty good. Revenue is still on the rise, as is the number of active users and new listings.
EBay's issues are so unique that the company can't be viewed as a harbinger of other businesses. The company is a mixed bag, and things will get worse before they get better. The same thing can be said about the stock price.
Related reading:
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