eBay in 2019: The Cash-Generating eCommerce Turtle

Perhaps long-term growth investors aren’t following the stock anymore. eBay GMV going backwards and the stock pops. Investors are focused on dividends and cash. These same investors care about the next year and not the next 10 years.

In a situation like this, Amazon doesn’t have to try very hard to win. eBay just started playing a different game years ago. I said this to a close friend — eBay’s current management team is not even part of the problem, per se. But they aren’t part of the solution either. They are just continuing a trend set in motion ALMOST as far back as I remember. Around the time Meg Whitman said in 2003 that “A monkey could drive this train.” One of my all-time ill-fated business quotes, for the record.

One analyst report I read this week had the headline: “eBay, moving in the right direction.” Sounds like damning them with faint praise. Know what else moves in the right direction? Very slowly, almost imperceptibly? A turtle.

Let’s review a few of the basics of eBay:

• eBay is a PHENOMENAL company with unbelievable GMV. and a singularly unique history Millions of sellers make a living here. The innovation that eBay birthed from its founding is unprecedented and amazing.

• eBay has long-since fallen behind Amazon in any metric you can dream up. And this has been accelerating for over 10 solid years.

• eBay’s split with Paypal is taking them years to recover from. Management is “delighted” with their payments progress. It’s not much to celebrate. They are contractually obligated to have a long, drawn out transition just to get back to where they were in the beginning. That’s hardly innovation, I would call it asleep at the switch. Google Pay and Apple Pay innovation? Not in 2019.

• NIche marketplaces are the toast of the town. In many ways, they have eaten out the core of eBay. Collectibles, furniture, handbags, sneakers, tools, jewelry, the list goes on. Smart growth-oriented VC firms are taking continued aim at a wounded animal.

How to reconcile all these?

Buyer Cohort Behavior

I listened to Devin Wenig on the call and heard a man out of options. GMV is sliding. So all projects are trained on the active buyer number. The hope is that active buyers goes up, GMV will follow.

There is some hope placed on structured data, but the implementation is laughable and cautious at best. Existing buyers won’t have their experience changed much for fear they will drive existing buyers away eBay is not acquiring many new buyers. However with the new buyers they do acquire, they are seeing structured data. So is structured data a good idea or not? Is “new and old” the best segment? What kind of statement does that make about eBay’s personalization capabilities that they couldn’t leave collectibles buyers out of structured data? Aren’t there more segments to eBay’s buyers than this?

eBay’s CFO said with a straight face that their new buyer cohort demonstrates the SAME EXACT behavior as their older buyer cohorts. This is terrible long-term news for the business. In a growth eCommerce SaaS business, the ONLY thing that truly matters is consecutive improvements in cohort behavior.

How do you think Shopify got so big? They never cared for one second about replatforming existing Magento merchants. They only cared about being the best solution to grow new merchants coming into the market. They looked for up and coming brands over and over. And those brands grew with the platform. Rinse, repeat.

More Disturbing Management Comments Around Promoted Listings

eBay GMV is sliding. However eBay revenue is increasing. How is that? Well it’s because of promoted listings. Essentially promoted listings allows sellers to get in front of buyers and “jump the queue” to get to the top of search results. Management is cheering this trend. It’s a small test, they say. But sellers love it! Great NPS! But for how long? You only talk about NPS when the ROI is either unknown (distrurbing) or not enough to move the needle (more disturbing).

A few comments on this:

• eBay search is known terrible for years, if you follow the company.

• eBay buyer cohort metrics are not improving. The CFO told us so. Which means the test is either inconsequential or too early to report on.

• So this means management is celebrating a trend where sellers are milked for more money, buyers get poorer quality search results, and sellers can’t prove the ROI. How is this good long-term?

• What next, eBay to charge sellers to have more reviews on their products because it raises revenue?

In the end, the fact that eBay is talking about a minor promoted listings test on a major investor call is a sign of what management is having to pull out to show signs of progress.

I have followed eBay for so long that I remember the mid-2000s when eBay senior management stood up and said that every seller would have to pay twenty-five cents to put an image on a listing. All the while every major eCommerce site out there, you need images and videos to sell products.

The fact that this is the FIRST thing I thought about during this part of the investor call is not a good sign.

Innovation Slowing

Hidden in the presentation was a mention about their R&D teams being reduced 2%. That means layoffs broadly - the biggest cost is always people. In an era where Amazon is hiring tens of thousands of new engineers, eBay is shrinking its innovation teams.

It’s just another reminder to me that eBay is a business being managed for cash. Not for innovation. Are there no big fence-swinging innovations in supply chain, payments, advertising, merchandising that eBay could pioneer? Where are those ideas going to come from? Innovators want to work for a growing organization.

What business are they in? What is their long-term vision for what consumers want? What new skills beyond replacing the Paypal payments infrastructure and promoting listings does eBay need to learn how to do?

Amazon is playing an entirely different ballgame. Venture capitalists and Amazon are playing chess, while eBay is playing checkers. Investors are going to be rewarded with higher dividends in the short-term, because management doesn’t see a use for more cash.

Raising Guidance

More from Devin Wenig. Raising guidance! This is a bet. Perhaps it’s a savvy bet, but it sounded to me like a short-term bet. Are their models solid? Let’s hope so. If his bet is right that guidance will come in higher later this year, he will look like a genius. If it doesn’t happen, what next? Elliot Management to the rescue?

Between us, this doesn’t sound like a company thinking about the next 10 years. It sounds like a company only thinking about the next 2 quarters. Where was the plan on this call? Strategy? Even the call itself was talking about tactics. Where was the discussion about how to reverse the growing eCommerce market share losses?

And if you’re a venture capital investor, or Amazon, or Alibaba that is a great thing.

To reiterate, I love eBay. I care about them so much as a company. I just think the problems have been present for so long, that to management they don’t look like problems. Or they look insurmountable. They just look like the normal landscape. And analysts, well to listen to the call, they aren’t asking tough questions anymore.

Look, it’s not like eBay had a horrific quarter. It’s not like the call was bad. Or contentious. But perhaps it should have been? What is being left unsaid?

WHO CAN TURN AROUND EBAY?