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eBay "Charmed" Street with the 'Power of Three'

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Meg Whitman, eBay Inc. (NASDAQ: EBAY) CEO, has this way of describing the company she heads straight out of the fantastic realm. If it is the magic of eBay, The Power of Three, or IT. Regardless, eBay reported Q3 earnings yesterday and the market is now in-love. eBay shares were up around 7% most of the day surpassing the $30 threshold.

So, were the results really that great? In my opinion, eBay indeed reported some very positive things, but didn't address, or didn't address to my satisfaction, I should say, other issues. I'll leave the number tinkering to analysts - they have the tools and resources to follow listings and growth properly. I want to just discuss the big picture issues that I outlined in my earnings preview:

  • Core auction growth - "Core listings were up 20%, and store inventory listings grew by 85% to 95 million new listings in the quarter. As we anticipated, store inventory listings growth decelerated..." Also, core U.S. listings accelerated to 10% year-over-year. My concern - the company lowered Q4 and 2007 outlook despite these growth numbers. It begs the question - why? If conversion rates, GMV, core auction listings growth are all improving - why give a cautious outlook?
  • Listing mix - check mark here. eBay's strategy is working and the shift in listing mix to auction continues.
  • China - not enough answered here. First, I'm happy eBay is committed to that market, but Meg wasn't specific as to eBay's plans in the Asian markets, nor how to improve on the business model especially with the low fees there.
  • eBay Express - another check mark here. Good stuff. It only debuted in Q2, but results are positive.
  • International markets growth - GMV growth of 21%. "In Europe GMV growth accelerated in a number of markets, including the UK, Italy, France and Spain. Germany listings and GMV continue to grow despite an overall slowdown in the market. In Asia, the markets are extremely diverse and highly competitive." So they have some good markets and some challenging ones.
  • Google and Yahoo! partnership - eBay is already testing the Yahoo! ads and will start testing with Google in early 2007. Some have expressed concern about placing ads in the U.S., saying it would anger merchants even more than they already are. From what I read in the comments, that's quite possible. Also, eBay started testing integration of PayPal at Yahoo! and the Pay Per Call feature with Google will only come at second half of 2007. I'd say that these were good initiatives and hold promise of extra growth for eBay.
  • PayPal - huge check mark there. Google Checkout doesn't seem to be even an issue.
  • Skype - while Skype continues to post amazing triple digits growth with 250,000 new users per day (!), I find the strategy somewhat lacking. Meg said they prefer to focus on increasing user base rather than worry about monetizing. I think they should have a strategy for that already, especially since Skype is so strong in China where fees/charges aren't accepted with great enthusiasm.
  • Merchants - surprisingly, sellers didn't leave as much as eBay expected when introducing the fee hike.
  • Buyers - "On the buyer side, it is too early to draw conclusions on our rebalance efforts as the last of the low-price store inventory listings expired in late September. We will monitor the buyer metrics which were originally impacted by the imbalance, including exit rates, return visits and buyer activity, over the course of the fourth quarter and update you in January." Okay, let's wait and see.
  • Fraudulent seller activity - Meg only mentioned that with regards to China.

Overall, my take is that there are still things to watch out as the good numbers were very much affected by lower tax rate and favorable exchange rate. eBay is still missing a bit on the growth, I think, and need more focused strategy to tackle China and monetize Skype. Since Japan's Godzilla (Yahoo! Japan)trumped eBay there, I wonder whether they should quickly introduce a Dragon strategy in Asia, whatever that would mean in Meg's mind.

A full transcript of webcast can be found here.

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Last updated: November 12, 2009: 02:41 PM

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