Loading...
Symbols:
Authors:

EBay's Aim at Amazon: Off Target

by: Michael Shedlock August 20, 2008 | about stocks: AMZN / EBAY    
Michael Shedlock

Michael Shedlock

About this author:
Become a Contributor Submit an Article
  • Font Size:
  • Print

Competition for customers between eBay (EBAY) and Amazon (AMZN) is heating up. In an attempt to win market share EBay Cuts Fixed-Price Fees More Than 70%, Maintains Forecast.

EBay Inc., the world's largest Internet auctioneer, lowered fees for listing fixed-cost items by more than 70 percent to attract additional sellers and compete with Amazon.com. EBay said the changes won't affect its annual earnings projection.

Sellers will pay 35 cents to list multiple quantities of the same item for 30 days, the San Jose, California-based company said today in a statement. Previously, sellers paid between 35 cents and $4 per item listed for seven days.

Chief Executive Officer John Donahoe's strategy of removing most upfront fees is designed to boost listings and grab market share from Amazon.com, the world's largest online retailer. EBay's sales growth in the second quarter slowed the most since 1998 as consumers, hurt by rising energy and food costs, reduced purchases. The new prices take effect Sept. 16.
 

Demand For Junk Is Waning

It's no surprise, at least in this corner, that sales growth at eBay has slowed the most since 1998. After all, the Future Is Frugality. (And that future is Now).

Somehow eBay (EBAY) wants investors to think that it can slash fees and make up for it on the back end and/or by stealing market share from Amazon (AMZN). Is Amazon supposed to sit back and let this happen? Will lower fees even boost sales? I believe answer is no to both.

This is not the "gotta have it now" mentality of the past few years to say the least.

EBay Monthly Chart

(Click charts to enlarge.)

Interestingly, eBay exploded higher in 2003 exactly coinciding with the peak of silliness in the housing boom. This should not be surprising. People were looking to unload garbage from their old house and/or find stuff for their new house, or simply to shed some accumulated junk for money.

While those looking to shed accumulated junk is likely rising, willingness for buyers to purchase said junk is waning faster.

A quick check on Yahoo Finance shows eBay to be sporting a PE of $65.59 with a market cap of $32 billion. Is ebay a value play? A growth play? The answer is neither.

Insiders Bailing As Fast As Possible

Meg Whitman is bailing as fast as humanly possible.


 

Shareholders of eBay have lost money for three straight years, while insiders grant themselves massive amount of options, only to bail on the the second they acquire them. In one paired transaction on May 14-15 2008, Whitman made a cool $6+ million in a day.

Since January 2005, eBay has fallen from $59 to $25, a drop of 57.6%. Sadly, the stock is still massively over-priced given that it is neither a value play or a growth play. Worse yet for eBay is that consumer sentiment towards consumption has hit a secular peak. The bottom in sentiment is years, perhaps even a decade away.

This is not a recommendation to sell or short eBay. My interest in this is from a macro perspective. From that perspective, frugality has hit eBay and profits have only one way to go, and that is down. This is just as one would expect in deflation.

Related Articles

This article has 8 comments:

  •  
    Aug 20 05:20 PM
    the only problem with using the pe of 65 figure is that it's a direct result of the write downs from skype last year. the forward pe for ebay is around 13.

    amazon has a pe of 60 and a forward pe of 38.

    amazon is doing well with some of their services and growing, whereas the marketplace for ebay has not shown the same amount of growth. but it's margins are so much higher than amazon's. also, pay pal and skype are still growing handsomely.

    it would be nice to see a more rounded picture if you want to make comparisons between the two companies.
    Reply
  •  
    Aug 20 07:01 PM
    eBay still doesn't understand that if it wants to compete in the direct retail sales market it has to make the listing process completely free. The "listing fee" model is a such a strong holdover from its early days that it just can't get its mind around the concept. Don't get me wrong! I prefer the sections of eBay where unusual items are auctioned by small operators. But the small fry are being driven off, and the big guys not properly attracted, for this company to survive as we know it.
    Reply
  •  
    Aug 21 12:46 AM
    As a long time ebay seller of the 'unusual items' that magscanner is trying to buy, ebay management is continuing to make it even tougher to continue to sell on the site. I just finished trying to read and understand their most recent batch of changes (announced today, 8/20), and it is so complex that only a consultant could love it. The site that both buyers and sellers loved for a decade, is no longer recognizable. I continue to try to do business on the site, but the constant changes are making me want to just go away. There are many other options for sellers, including selling my unusual items through non-online options, or just collecting them myself, which is where I started out. I like this stuff also, as do many sellers, and have no problem just keeping it. If in fact this country gets into the inflationary cycle it did in the 1970's, holding collectable hard assets may in fact be a very smart strategy. I, for one, am willing to own these myself, instead of just giving them away on ebay. Buyers and sellers both understand that ebay has completely destroyed the pricing structure for these unusual collectible items, and has driven down prices by over-supplying the market. These items are now so cheap that the incentive to sell them has nearly disappeared, and I don't think that is a permanent situation. One might very well see this market recover at some point in the future, and holding some of these items may well prove to be very smart. I can still find these items, even though it is increasingly difficult, but why should I work my buns off finding them, then jump through ebay's structure to list them, and see them sell for near to nothing? The good stuff is going to go into some sellers collection, it seems to me, and the junk is going to go onto ebay, like it has been doing recently. At least, that is going to be my strategy.
    Reply
  •  
    Aug 21 07:28 AM
    as a power seller on ebay with 100% FB and over 67K total FB I can only state that selling on eBay has become unbearable. I am not expert in finance but I understand that eBay's most profitable area is Paypal fees and now revenues from ads? If so, then it says it all, doesn't it?
    Reply
  •  
    Aug 21 10:02 AM
    Response to Redbaron:

    You make an excellent point! Food for much thought....
    Reply
  •  
    Aug 21 11:15 AM
    Another response to Redbaron:

    Some excellent points about Ebay and collectables, I agree with much of what you said, but I approach it from a different angle. One of the great successes of Ebay was the way in which it created a vast transparent market for collectables, which meant that they were able to find a true market price and not one artificially inflated by speculators. I was able to add to my collection at an affordable price, and as my tastes changed, easily sell the items that I wanted with low fees and no dealers profit margin to reduce the price that I got.
    That is the market that Ebay are rapidly destroying by their changes in policies and constant fee increases, and their attempts to become an Amazon clone. Alternatives such as ebid.net are starting to fill that vacuum by providing the sort of environment that collectors want, the latest changes can only speed that process. In the meantime, if I want to buy a book or DVD, I would still look at Amazon first. I feel more confident dealing with a company that still seems to make items easy to find and provides a hassle free service. Perhaps this is in part a reason for the different P/E ratios.
    Reply
  •  
    Aug 22 10:57 AM
    As a long term seller and having built a family business around Ebay selling of over 1 million a year, I have to say it is symptomatic of the short term, instant gratification of Corporate America and Ebay is a reflection of it. Today our DRS's dropped below and we lost our Platinum Powerseller rating. Of course it was entirely over shipping (we generally ship within 48 hrs, have a great overall rating) Shipping Rating is entirely subjective to the buyers whims and or ignorance. Ex: Auction ends Monday, they pay following Friday night, Monday we get an email" why hasn't my item shipped yet??? I will leave negative if i don't hear back".
    Of course we drop everything to get it out, Get a negative anyway because they didn't read the auction (Ebay should have a minimum intelligence quiz for buyers before they can Bid) So the moron (oops i mean customer) leaves a negative due to the fact that he won 15 days ago and should have had it already, even though 10 of the days delay were of his own doing. So of course, our DSR goes down, we lose our ratings, our discounts and our love of Ebay. Given any other alternative, we would jump there in a heartbeat.
    Now they want to force you into lower shipping costs even though they are going up 10 percent a year... and the costs will be somewhat determined by what customers would want to pay???? C'mon bring back the original people or start a new Ebay that mirrors the old one.
    Reply
  •  
    Oct 05 11:42 PM
    Hell, they suspended me for 30 days for SNP (Seller Non Performance) as we got a few negatives in the month! We have a shooting star, 98+% FB, 4.7, 4.7, 4.7, 4.4 DSR's and been selling since 1999. We sell mostly used IT equipment, some even untested, but all CLEARLY LISTED! Now people can return our stuff under PayPal's SND policy and though it is what they ordered and get their 4 back-CRAZY! We clearly got feedback extortion and they did not remove it. We also got a person with a 1 feedback, fake phone #, et cetera gave us a negative on an as-is item (parts laptop for $15.50) and they will not remove it. We are suspended for 30 days, I was buying a house and my business is shut down AND they pulled $300,000 worth of my auctions down??!?!?! We were never ever suspended before and yet even calling Trust and Safety, they said I have to wait 30 days. Wait? what about my depreciating inventory? What about my employee I just laid off? I am sick-truly emotionally battered by Ebay. I would STONG ADVISE not to buy or sell there and from reading on the Internet, there are so many ways to easily start another Ebay account and attack your competitor and get them suspended, I am wondering if it happened to us. I am simply put, flabbergasted and WAS at one time a huge EBay supporter. Now, they cost me literally $1,000 a day in depreciation and lost profit while my overhead keeps accumulating a bill. This will never happen again as even when reinstated, we already opened an Amazon account, and are listing on our own website now. I am sad and mad on so many levels-they should be ashamed of how they treat their customers.
    Reply
More Comments on EBAY ยป
More by Michael Shedlock
Investment Resources
Money Managment
Research
Seeking Alpha provides these ads as a service to its leading contributors
Articles on related themes
e-Commerce
e-Finance
Internet Advertising
Internet Content/Community