In recent years, eBay has been in a continual implementation of numerous changes in its central marketplace to give users of the platform a more fulfilling selling and buying experience. The changes, though aimed at improving engagement in the long term, are at the same time responsible for a certain amount of disruption to buyer adaptation in the short run. The consequence this year has been a slowdown of eBay’s growth in Gross Merchandise Volume (GMV).
Irrespective of the GMV growth, losing speed, the beginning of this year has seen eBay stock hitting up to 37% and the prospects of seeing it go even higher are quite high. Here are some reasons investors have overlooked the fact that GMV growth is losing steam and remain attracted to the company.
Online Shopping Healthy Marketplace engagement
Among the reason that keeps investors consistently interested in business on eBay and less interested in the low growth of GMV is the positive picture management that 2019 is going to be a year of transition. eBay has invested significantly in many areas that need modifications to improve its marketing strategy. The company is tilting its ad spending to areas that are likely to generate good returns as opposed to the previous ones with less traffic. Google search, for example, has not been great, and eBay is leaning towards profitable avenues like social media. The adjustments have come with several disruptions such as buyer conversion issues regarding transactions on the marketplace.
Also, the adoption of the digital era’s internet tax is being embraced by a growing number of states, and that is pushing back some buyers from spending. According to the management’s angle on this, it is nothing but a short term wind blowing over the marketplace considering that the general basics of the marketplace look sound.
Management weighs the marketplace to determine how healthy it is by using three metrics, which are listing numbers, active buyer growth, and seller growth. These three metrics are experiencing growth, and as of now, are in their highest ever growth level. According to history, having three strong metrics indicates GMV growth in the short term.
Advertising in Online Shopping
Another strategy eBay uses to facilitate a sound buyer conversion rate and enhance the growth of GMV is to assist sellers bring their listings directly to the correct buyers and at the appropriate time, using promoted listings.
This advertising plan offers eBay sellers the choice of having their listings promoted by the company. That comes as an additional fee, and it has gained significant popularity among sellers.
With about $89 million generated by eBay as revenue from the promoted listing strategy within the second quarter, this amounts to a whopping 130% year after year. Management anticipates up to $700 million in revenue through this very advertising strategy this year. The company believes that promoted listings in the long-run will produce $1 billion in revenue annually or about 10% of the total revenue of eBay Online Shopping.
There is a new service for payments that eBay’s has created, and there are prospects that make it potential enough to surpass advertising as a bigger revenue generator. As a component of eBay’s plan to terminate the payment agreement it had since managed with PayPal Holdings, the company has resolved to fully handle payment processing by itself as a means of offering buyers massive options at checkout as well as money-saving deals for sellers and buyers via lower fees.
A new payment platform is already on board and allows buyers to check out by using the following options, Alphabet’s Google Pay, Apple Pay, and PayPal. It was in 2018 that eBay launched this service and has so far processed payments of up to $636 million. Management’s expectations hold that when the service would have scaled fully, $2 billion annual revenue and an operating profit of $500 million will be the results.
- More potential value to be unlocked in Online Shopping.
There is optimism among investors who believe that eBay’s classifieds and StubHub businesses have tremendous value that when unlocked, the company will witness remarkably high growth. When management announced its intention to make a strategic review of these assets, online shopping investors now expect that the move could come with a spinoff or sale of the businesses. It’s a strategy that can unlock money for speeding eBay’s growth plans in areas like advertising, payments, dividends, and share purchases capital.
- Capital returns
The free cash flow eBay generates surpasses its revenue. Last year saw the company generating $2.5 billion only in free cash flow compared to $10.86 billion from revenue. Much of it as per management plans return to shareholders.
eBay has not relented its efforts in exploiting the low valuation witnessed last year on the stock price. It had to buy back a substantial amount of shares, reducing the shares immensely by 11.8%, and boosting EPS.
Earlier this 2019, eBay as well introduced its first dividend with a quarterly payout presently set at $0.14 per share, raising the dividend to 1.37%.
Competition from several e-commerce online shopping rivals keeps increasing. However, if the company witnesses a GMV growth alongside advertising and payments growth next year, stock levels will rise, contrary to current levels.
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