Key questions and answers from the second quarter earnings call conducted by eBay Inc. (EBAY: chart) on July 16, 2008.
Jeffrey Lindsay (Sanford C. Bernstein):
What do you think is the impact of couponing on eBay's total revenues and take rate?
Robert H. Swan: Our marketplaces revenue in the quarter were impacted by three points, and that was a function of three things: a modestly lower take rate from the price changes we made; secondly, higher discounting for the power sellers who continue to improve their overall service levels; and third, coupon as it relates to retaining our buyers as opposed to acquiring new ones.
In terms of the power seller discounts, we think this is a great program to incent our power sellers to continue to provide a better experience for our buyers, so to the extent that they keep providing great service, we think that will help grow the business; in turn, we will reward those power sellers with discounts at the back end.
Power seller discounts is in effect a reduction of our take rate and couponing is treated as contra revenues, so they both impact our top line growth rate. You also will have noticed a dramatic decrease in sales and marketing percent, as a percent of total revenue and that is a function of the trade-off we are making.
Brian Fenske (Lehman Brothers):
Is there any sort of timeline for rolling out more category specific pricing in the U.S.?
John J. Donahoe: We did roll out specific media pricing in the first quarter and we have communicated that it is our intention to move in that direction, and most likely in the second half of the year.
And the rational is quite simple, that sellers make very different margins in different categories, and so we think over time that our pricing has to reflect that.
Brian Fenske (Lehman Brothers):
Can you comment a little bit more about the deal you are doing with buy.com and how the economics work there?
John J. Donahoe: The buy.com relationship is one that really symbolizes what we want to do going forward, which is really incent and reward those sellers to provide low prices to buyers and great service, and buy.com is in the process of doing that.
The movement to incent and reward great prices and great service to buyers is not limited to larger sellers. In fact, we have many small sellers who are achieving very high DSRs and are providing great prices and great service to our buyers.
Youssef Squali (Jefferies & Company):
What have you baked into your guidance, both in terms of GMV growth and just how we should be thinking about ASPs?
Robert H. Swan: We indicated at the beginning of the year that our primary focus is on increasing velocity on the eBay platform and we do it through a combination of improving selection, improving trust, and improving findings.
GMV growth was dramatically impacted by lower average selling prices. The only additional item is vehicles. Our vehicles business grew by 7% in the first quarter of 2008, and that went down to 0% in the second quarter.
That is primarily a function of two things i.e the economy overall unit growth in the overall secondary market in the quarter was down 6% to 7%. Our business was relatively flat, so we are impacted by unit volume. Secondly, as a result the market was down 6% to 7%.
The second thing that’s impacting our vehicles business is just a shift in formats and how that volume gets monetized. Format shift is to more classifieds, more local and that’s why we have our [Mobilay] brand and Kijiji brand and other classified brands around the globe to capitalize on a shift in vehicles, how vehicles get transacted.
We also monetize differently. We monetize today more through subscriptions and ad-based fees as opposed to GMV based transaction fees.
James Mitchell (Goldman Sachs):
Is it safe to assume that vehicles in Korea have very low take-rate activities which have less impact on transaction revenue, while the reduction in ASPs would flow through to lower transaction revenue because of lower final value?
Robert H. Swan: On your bifurcation of GMV deceleration in terms of how you broke it out, lower ASPs, vehicles and Korea, that is the right kind of numeric breakout. In terms of implications going forward, we expect the GMV from vehicles to continue to be relatively weak compared to prior period performance.
There are a couple of things in ASP that we laid out, it is more economy sensitive, and consumers migrating to lower-priced items within categories and we believe that is more economy sensitive and we will continue to feel the effects of that until the economy rebounds.
Christa Quarles (Thomas Weisel Partners):
The only monetization happening is an ad from Yahoo!. Is that indicative of its ability to better monetize relative to what you think your listings can monetize?
John J. Donahoe: The bottom line is we think our listings, especially as we improve search, are the best way to monetize that above-the-fold real estate. So we do have the graphical display ad from Yahoo! at the top of the page but listings are still monetized most effectively and are consistent with the real core focus on the transaction marketplace.
We are finding where the text ads really monetize best are on null search results, where in those rare cases we do not have inventory, or on complementary items that are made to fold down at the bottom, and so overall both text ads and graphical advertising is growing.
