eBay posted its third-quarter 2008 earnings on Wednesday, revealing it earned $2.12 billion in revenue for the quarter, which was down 4% compared to the previous quarter and up 12% year over year. Its Marketplaces business was down 6% from the previous quarter and up 4% compared to the same quarter a year ago. eBay's Payments business was up 27% year over year, and payment volume from PayPal's merchant services business exceeded the volume received from the eBay marketplace for the first time. eBay's Communications business was up 46% year over year.
President and CEO John Donahoe said he anticipated a very challenging fourth quarter, and eBay lowered guidance. But, Donahoe said, "We intend to fight aggressively for demand in the fourth quarter to support our sellers and driving demand to their great deals and great service." He said he envisioned spending more on marketing, coupon programs and the cash-back program with Microsoft. eBay CFO Bob Swan said, "In tough consumer spending environment, we'll spend more in marketing, particularly in couponing."
eBay breaks down its businesses into Gross Merchandise Volume (Net Transaction Revenues) versus non-GMV (Marketing Services and Other Revenues). The latter makes up a much smaller percentage of revenue but has a much higher rate of growth, and includes Shopping.com, Rent.com and eBay's classifieds websites. Net Transaction Revenues for Marketplaces grew 1% year over year. Marketing Services and Other Revenues for Marketplaces grew 29% year over year.
During a conference call with analysts, Donahoe talked about eBay's "adjacencies" business - defined as advertising, StubHub and classifieds - which he said makes up 11 percent of eBay revenues. Sellers who may have noticed an increase in ads for off-eBay listings and venues were correct - revenue from eBay's text and graphical advertising partnerships grew 127% year over year.
Metrics for the eBay Marketplaces business (not including Rent.com, Shopping.com, and eBay's classifieds websites) revealed that Gross Merchandise Volume was down 9% compared to the previous quarter and down 1% year over year. (See page 10 of eBay's press release.) The number of eBay Stores was down 3% from the previous quarter and up 3% year over year. The percentage of eBay Stores hosted internationally dropped from 46% in the third quarter of 2007 and from 45% in the second quarter of 2008 to 43% in the third quarter of 2008.
There were two trends worth noting. Fixed-price trading as a percentage of GMV and advertising revenue have both increased. At the same time, year-over-year GMV growth rates fell. These inverse relationships could conceivably support the argument that changes that favor fixed-price listings over auctions hurt the marketplace, and that advertising appearing on search results pages that sends shoppers off of eBay hurts the marketplace.
Swan said, "On eBay, buyers are increasingly using PayPal as a safer way to pay online," pointing to a 60% penetration on eBay. But he failed to note eBay's moves to incent shoppers (eBay only protects its buyers who use PayPal) and force merchants to accept PayPal.
Factors that affected eBay's third-quarter performance were the strengthening dollar and a weaker economy, which especially impacted eBay Motors. eBay lowered guidance for the fourth quarter:
For the full year of 2008, we now expect revenue to be in the range of $8.525 billion to $8.675 billion, and non-GAAP EPS in the range of $1.69 to $1.71. The reduction in our guidance is primarily a function of a stronger U.S. dollar, a tougher economic climate, and dilution from the acquisitions announced last week. The weak trends we saw in the second half of the third quarter have continued into Q4 and our guidance reflects the uncertainty in consumer global spending.
eBay said in its presentation to investors it was confident it was working on the right priorities focused on making it easier for sellers to win and buyers to find great deals. "However it will take more time to stimulate growth in GMV."
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eBay's Press Release
Earnings Call presentation
Earnings Call Transcript on SeekingAlpha.com
