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In marketplaces, the firm remain extremely focused on improving the buyer experience on eBay.
- To that end, it is making a series of changes that will create a healthier, more vibrant marketplace, by rebalancing pricing, shifting from insertion fees to final value fees.
- It also began offering free gallery photos in the U.S. and U.K and implemented a series of initiatives to improve trust sand safety.
For the first time, it began rewarding sellers who provide the best buyer experience, as indicated by their detailed seller ratings, or DSRs, and began offering DSR-based discounts to qualified power sellers.
- eBay also made changes to feedback, such as offering sellers credit for repeat buyers and eliminating retaliatory feedback, a top concern of buyers.
- It launched best match search, starting with some trust-based changes which provide more search exposure to sellers who provide the best customer experience.
- Rebalanced pricing has clearly increased listings and selection on eBay, with new listings growing 19% to $667 million.
- Initiatives around feedback, DSRs, and best match are incenting sellers to lower shipping costs and improve the buyer experience.
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PayPal will also now extend protections to all U.S. sellers offering unmatched protections on eligible transactions at no additional cost.
- The firm remains committed to making bold changes over a 12- to 18-month period that will drive sustainable improvement and enhance the health and vibrancy of eBay.
- eBay offers PayPal a steady source of customers, and global penetration increased five points year over year to almost 57%, but there is still plenty of room for PayPal to grow on eBay.
- The firm launched Buy Now, Pay Later, PayPal buyer credit on eBay in the second quarter and is optimistic about the long-term opportunities this offering has for consumers.
On the merchant services side of PayPal''s business, payments from e-commerce merchants now represent 49%, or nearly half of PayPal''s total payment volume.
- Online retailers increasingly recognize PayPal''s ability to deliver customers and increase conversion and sales.
- Jet Blue, Delta Airlines, and Blockbuster Video are just some of the companies that have begun offering PayPal for their customers this quarter and thirty two (32) of the top 100 U.S. retailers on the web and 13 of the top 50 in the U.K. accept PayPal.
- In Europe, Arcadia Group, CD Wow, and two of the largest German flower retailers, [Fleura] and Valentine’s, have added PayPal.
Fiscal 2008 Outlook:
- In the third quarter, the firm expects to generate net revenues of $2.1 billion to $2.15 billion, and anticipates non-GAAP EPS in the range of 39 cents to 41 cents
- For the full year, it now expect revenue to be in the range of $8.8 billion to $9.05 billion, and non-GAAP EPS in the range of $1.72 to $1.77, up from previous guidance of $1.70 to $1.75.
- Free cash flow for the year is expected to be $2.35 billion to $2.45 billion, up $50 million from prior guidance.
Key questions and answers from the second quarter earnings call conducted by eBay Inc. (EBAY) 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%.
