eBay Tries, Wall Street Shrugs

The e-commerce giant's latest results affirm its need to reinvigorate shopping on its core sites as it moves into new businesses

by Catherine Holahan

Second-quarter results for eBay were met by a tough crowd. For many companies, results such as the ones eBay posted July 18 would be an impressive set of figures. The online commerce giant said profit surged 50%, to $375.8 million, on a 30% jump in revenue. Per share earnings were 27 cents, beating eBay's forecast by a penny, and the company raised the low end of its forecast for 2007 sales by $100 million. It now expects revenue of $7.3 billion to $7.45 billion.

Yet shares slumped in extended trading after the results were released, by 1.7%, to $33.46. What gives? Even though more eBay (EBAY) visitors are buying on the site and paying higher prices for goods, new item listings on eBay's core shopping site declined 6%, to 559 million, from a year earlier. That reinvigorated concern that sellers are ditching eBay to sell elsewhere, such as through their own storefronts or on competing sites such as Amazon.com (AMZN). If listings growth continues to decline on eBay.com, some analysts warn that eBay's high-performing payments business PayPal, which receives 60% of its business from eBay's shopping sites, will suffer as well (see BusinessWeek.com, 6/15/07, "The Bank of PayPal").

New Home Page Coming

In a note to investors prior to eBay's earnings call, Cantor Fitzgerald analyst Derek Brown articulated these concerns. He cites the declining value of the total merchandise sold on eBay's core shopping sites, which generate roughly 75% of eBay's net revenues, as reason for investors to sell the stock. "We have little confidence that eBay has fundamentally altered the tone and trajectory of its business," he wrote.

It's not for lack of trying. In the past three months, eBay began introducing a redesign aimed at improving search results on its core shopping site, spent roughly $75 million to buy popular recommendation service StumbleUpon, took steps to spread eBay's shopping platform across the Web, and debuted a U.S. version of its classified advertising site Kijiji, to name a few changes. More overhaul is on the way. "There are more product changes coming in the next six months than have occurred in the past few years at eBay," says Chief Executive Officer Margaret C. "Meg" Whitman.

Yet Whitman acknowledges that many of the changes, intended to reinvigorate the company's mature shopping sites in the U.S. and Germany, are too recent to have had significant effect on the company's bottom line. "It's probably a little early," she says in an interview, adding that accelerating the total value growth of seller listings in the U.S. and Germany is her "No. 1 priority."

Among the new features, the redesign includes a soon-to-be unveiled new home page. The company has also launched new tools enabling sellers to bid on multiple similar items at once without worrying about actually winning each auction and "widgets" that let shoppers browse eBay auctions from elsewhere on the Web, such as a blog, social network page, or a network-linked desktop (see BusinessWeek.com, 6/18/07, "Going, Going…Everywhere"). "The growth rate in the U.S. and Germany are still quite good; however, neither is where we think they can be," says Whitman.

Marketing Blitz

To spur greater revenue growth from its core business, eBay plans to launch a large marketing campaign in the fall touting the eBay shopping experience. Hints of what the campaign will look like can be seen in eBay's "windorphins" ads, which Whitman called a grassroots teaser campaign aimed at generating excitement for winning auctions and the eBay brand before the launch of the full advertising push.