eBay Q3 2024 Earnings - Weak Q4 Revenue Guidance Raises Questions About Fee-Free Selling, C2C Strategy
UPDATE 10-31-24
eBay's 10-Q filing shows that sales from China did in fact increase again in Q3, going from $264 Million in Q3 2023 to $293 Million in Q3 2024.
It was also up if compare quarter over quarter, with $291 Million in Q2 2024 vs $293 Million in Q3 2024.
It also confirms that the $50 Million legal reversal was related to the EPA case.
Interestingly, the 10-Q also stated no additional money being set aside for other legal issues - confirming my suspicions from last quarter that eBay likely believes any eventual settlement or judgement in the ongoing civil lawsuit about the 2019 cyberstalking scandal will not exceed amounts they have already set aside, which would be far, far less than the "9 figures" currently being sought by the victims.
Liz Morton
eBay has released Q3 2024 results, with weak Q4 revenue guidance raising questions about fee-free selling and consumer to consumer strategy pivot.
Important stats from the press release:
- Revenue of $2.6 billion, up 3% on an as-reported and FX-Neutral basis
- Gross Merchandise Volume of $18.3 billion, up 2% on an as-reported basis and up 1% on an FX-Neutral basis
- Returned $881 million to stockholders in Q3, including $750 million of share repurchases and $131 million paid in cash dividends
Notably, eBay is reversing $50 Million in "non-recurring legal matters" - likely money that had been set aside for the EPA lawsuit which was dismissed last month on Section 230 grounds.
Total Active Buyers were reported at 133 Million, a 1% increase year over year - which is where they were in Q1 2023.
While it's good to see it go up, it's still worth noting this is now the 10th consecutive quarter eBay has had less Active Buyers than Q1 2018.
Note: eBay changed the definition of GMV and Active Buyers at the end of 2021 and restated both figures going back to 2018 (chart reflects restated figures per eBay's amended reports.)
Once again, eBay declined to provide Active Seller figures, which were last reported at 17 Million in Q4 2021.
"Enthusiast Buyers" - those with at least 6 purchase days & $800 spend in last 12 months - are still stuck at 16M, which is where they've been since Q4 2022.
That means the buyer growth doesn't appear to be having much of an impact in eBay's "focus verticals."
This modest growth comes at a time when eBay is doing everything they can to "buy" GMV and Active Buyers with fee-free private clothing sales in the UK introduced in Q2 and expanding to all categories except Motors in Q4, as well as other initiatives that CEO Jamie Iannone and CFO Steve Priest admitted are "putting pressure" on Revenue.
That pressure is reflected in the difference between the Q4 context that was provided in the Q2 presentation - showing "revenue to grow modestly faster Y/Y than GMV":
Versus Q4 guidance in Q3 showing negative revenue, largely driven by "phased monetization of UK C2C initiative" - that would be the fee-free private selling across most categories, with buyer fees still expected to be introduced in the back half of Q1 2025.
That guidance for Q4 weakness sent eBay's stock price down over 7% in after hours trading.
What Iannone didn't mention - in addition to fee-free selling for private consumer sellers, eBay has been forced to turn to offering 0 fee promotions through the end of the year in some categories to business sellers as well, in order to try to quell backlash from the C2C initiatives and keep sellers from defecting to Vinted Pro.
Liz Morton
The willingness to give up fee revenue in order to boost GMV and Active Buyers is an interesting strategy - particularly since Iannone had been highly critical of previous CEO Devin Wenig's strategy that offered frequent discounts (paid by eBay) to try to attract more buyers in 2018-2019.
Those 15-20% off flash sales proved to be a double edged sword - once buyers get used to receiving discounts, they'll often wait for a sale before making a purchase, creating "one and done" or only occasional buying patterns.
Wenig's strategy was considered such a failure that Iannone felt the need to explicitly distance himself from it when he took the helm. However, despite his criticism of those past tactics, it's hard not to see that eBay is increasingly putting themselves in a similar position, only now with sellers and fees.
With Wenig's flash sale failure, eBay was covering a 15-20% discount to the buyer, but still collecting final fees averaging ~12-13% on whatever the discounted total amount of the sale ended up being.
But Iannone's seller fee promotion plan completely gets rid of Final Value and regulatory fees on these sales - so no matter what the item ends up selling for, eBay is not getting a cut from it unless the seller is using add on services like some listing features or Promoted Listings ads.
Business sellers could become habituated to frequent discounts, just like buyers did, and hold back some inventory until a fee discount or promotion is offered.
Iannone also made it clear that eBay still plans to introduce Buyer Fees to the UK in Q1 2025, despite recent developments from competitors like Poshmark and Mercari who have gone down the same path and either quickly reversed course or are still struggling with major buyer resistance and abandoned carts.
Liz Morton
News flash for US sellers - when Iannone was directly asked on the Q & A segment what eBay thinks about the possibility of bringing fee-free selling to the US, the answer was a very direct and resounding "no."
To your questions on the US, we have no plans to launch free selling in the US. The US is a different market from the UK. UK buyers and sellers are more open to buyer fees, it's more standard in the market.
There may be certain aspects of the product experience to streamline selling that we bring to other markets and as you know we look at each market and categories and think about the specifics of what's the optimal set of initiatives to unlock more supply and demand for that specific market.
Iannone also touted the introduction of eBay Balance in the UK, but left out the part where sellers have experienced difficulty and confusion with the launch and a user experience that makes it unnecessarily difficult to withdraw funds.
Liz Morton
He also talked up changes to the UK Local shopping experience and says they are defaulting all new C2C listings to offer both pick up and shipping options - a questionable choice that is bound to create confusion amongst new, inexperienced sellers who may not realize how to turn it off and wind up having people showing up at their doors inadvertently.
Managed Shipping (also referred to as Simple Delivery) will be expanding in the UK, eventually becoming mandatory for C2C items in 2025 as part of eBay's monetization plans.
Liz Morton
First party ad revenue from all of the various seller-paid Promoted Listings and Display Ad options) was $396 million - up 14%.
As expected, discussions about AI initiatives centered largely around "Magical Listings" with a main focus on the bulk listing tool recently rolled out for trading cards.
Liz Morton
At the recent eBay Open seller conference, it seemed that Iannone and others were trying to use this new, much more limited tool to draw attention away from the fact that the "take a picture and let AI do the rest" tool promised over a year ago still isn't available to most sellers.
Liz Morton
Interestingly, Iannone said that image-based "phase 2" of Magical Listings has been rolled out to 1/4 of US app users - which makes it very odd indeed that I have yet to see anyone really talking about it or providing reviews/demos in the eBay community or across social media.
If you do have access to the individual image-based listing experience that works across multiple categories (not the bulk tool just for trading cards), I'd love to hear your thoughts & see screenshots - leave a comment or contact me!
The Q&A segment also revealed analyst interest in competition eBay faces in Collectibles categories in particular.
Lee Horowitz from Deutsche Bank asked about focus category expansion, which Iannone basically ducked by declining to give any insight into which market segments may be the next target for that strategy, but also honed in on increasing competition eBay faces in the collectibles space as well.
...and then maybe just one on competition. You have scaled, sports related collectible competitors with direct relationships with leagues, maybe some supply advantages there, Walmart partnering in the fashion and sneaker vertical...
...can you comment at all what you see as some of the most important strategic moves in those two categories specifically to fight off competition from some of the large comeptitors moving in there?
While he did not mention them by name, Horowitz is clearly referring to Fanatics, who lured a longtime trading card seller with an exclusive deal to take their 40 Million card inventory off eBay to Fanatics Collect and whose recent acquisition of European live shopping platform Voggt will power expansion into the UK in 2025.
Liz Morton
He's also obviously picked up on Walmart's recent moves to take market share, partnering with StockX in sneakers and making a play for trading cards and other collectibles, powered in large part by a team of ex-eBay talent.
Liz Morton
Iannone's response did little to build confidence that he has a detailed strategy to fend off these competitors.
To your question on collectible business and competitive positioning, we feel great about the innovation that we're driving quarter after quarter from that standpoint. I mentioned this quarter, as a very scaled player in the market, we continue to see double digit growth in trading cards.
We've put together a really nice collection of assets, when you think about TCGPlayer in collectible trading cards to now Goldin, sell everything from ungraded trading cards to the highest value products in the hobby and that's valuable because collectors are generally looking kind of across the span to do stuff.
And all the innovation we've been driving in that category with Collections, Price Guides, and Authentication, products that we've launched with PSA, this new partnership that we've put in place...just think about it, all the things we've been innovating are the exact things collectors have asked us to do for years...
And Tom Champion from Piper Sandler had an astute observation about the silent giant in the room - increasing sales from China.
Jamie, perhaps for you, always a lot of helpful commentary on the business in Europe but I think China is actually now your number 3 market by revenue and I'm wondering if you could just give us an update on the business and your customer base there.
Iannone answered:
So look, our cross border trade business out of China continues to be strong. It over indexes to focus categories, so it's performing well.
Specifically I would call out parts and accessories has been a really good vector for our cross border trade business and we've continued to make that easier for buyers and sellers with our shipping solutions that we've had, we've helped them forward deploy and we've also just made payments a whole lot easier from that perspective.
Translation: US sellers can expect to continue seeing increased competition from sellers based in China, especially in Motors categories, particularly if eBay continues losing business development leaders to competitors like TikTok and Temu.
Liz Morton
Final Thoughts
Iannone seems to have bought a small amount of breathing room and time to try to make the C2C strategy pivot work in the UK as Wall Street has been mostly placated by stock buybacks, but it's difficult to see how anyone can consider small movements up or down a percent or two to be real signs of GMV, Active Buyer, or Revenue recovery or growth.
That still leaves the company with few options for increasing revenue except continuing to ratchet up take rate through ads and other fees, now with the increasingly risky prospect of introducing buyer fees next year.
Once again, I must conclude with nothing truly magical on the horizon and no clear vision for a strong strategy to reinvigorate sales across the site while holding competitors at bay, eBay's long-term prospects don't like bright.
