I was going to write about the slowdown in PayPal’s growth rate in the third quarter, PayPal being the motor driving eBay’s increasingly shabby bus. Alas, Scot Wingo already wrote that at eBay Strategies including a quote from Jetil Patel of Deutsche Bank; the only analyst who knows what he is talking about when it comes to eBay (that opinion and emphasis within the quote is mine.)
Simply put, we think that eBay is approaching an inflection point in its business in that competitive pressures (specifically Amazon Prime and FBA) are likely to shift consumer demand away from eBay in coming quarters. Increasingly, we think that eBay’s underlying economics work in high ASP and high-margin categories, yet in low-ASP and low-margin categories seller economics look to be negative. These economics are constantly being pressured by lower product pricing.
De-coded: small sellers are eating dirt and that is not a sustainable lifestyle
Then I thought I would write something snarky, but seriously factual about eBay’s accounting shenanigans(def. #1.b &2) and the stagnation of eBay’s marketplace, but EventHorizon wrote that one, my favorite quotes from his piece:
GMV quarter to quarter growth is essentially dead. Third quarter shows less than one percent movement, compared to second quarters “1%.” And what of John Donahoe touting a GMV increase of 16%? It’s the year to year increase. And this year’s GMV, $14,666 million, is coasting downward off of eBay’s record 2010 year end GMV of $15,039 million . . . . [sellers funds held by PayPal] Going from 2010 fourth quarter’s $2,550,731,000 to this quarter’s $3,295,115,000. Yes, that’s 3.29 Billion dollars . . . . . It appears from the above metrics that eBay sellers in aggregate have had their say in the matter.
De-Coded: small sellers who don’t like eating dirt left and they aren’t buying there either, plus the economy is rotten
Word of the quarter seems to be inflection point. Jetil Patel used it (above) and so did at least one other analyst and both John Donahoe and Robert Swan in the earnings call. transcript
So, as we say on eBay, what is an inflection point? It is a mathematical phrase referring to a point on a chart that marks the beginning of a significant move, either up or down. The Business Dictionary says:
“The time of transition of company’s competitive position that requires the company change the current path and adapt to the new situation or risk declining profits.”
- The worse sales get, the less sellers are willing or able to ‘invest’ in trying to do business on eBay. Many sellers have reached a point that eBay is a zero-sum game.
- Increasingly skewed search finding frustrates buyers to the point they use Google and Google Shopping, which will not take them to eBay auctions, or they go straight to Amazon, Bonanza, Etsy, depending on what they are seeking.
- Established small sellers of non-cataloged items who are still hoping for a share of the crumbs will limit themselves to their 50 free Auction listings per month, pricing to make a profit on one bid sales if they are smart.
- Small sellers of cataloged items planning the same strategy on eBay should read Chris Dawson’s TameBay article “How eBay is hiding your auctions from buyers” first.
- Projected complete integration of PayPal only eBay Shopping cart will boost PayPal numbers but I believe this will be a transient increase. Large sellers will not welcome the higher PayPal charges or increased accounting expense and will work actively to avoid the cart. Think of it as PayPal gathering the fallen fruit from the ground. The low hanging fruit has been picked on eBay, all that is left are the windfalls.
- As PayPal increasingly plays the ‘hold your funds’ game the churn rate for new sellers will increase. Many will only make one transaction before departing, telling eight to ten people about their awful experience, each of whom will pass the information on to another five people if we are to believe marketing lore.
In summary: GMV may be up but margins are down. Remember, margin equals profit and avarice in square 98 takes you clear down to square 28. I think the inflection point has passed and the slope is downhill. Finally, a quote from an article by Stephen Gandel in the October 11th 2010 issue of Time .
There are few aneurysms in American business. Few companies drop dead. Instead, most endure a long slide into the grave.
Y’all come back!