eBay Inc. (EBAY) announced a couple of initiatives for buyers in an attempt to improve the traffic to its online marketplace. Sellers will now be able to list up to 50 items for free. They will also be eligible for lower charges when they allow free shipping to customers.
In the past, eBay faced a lot of criticism from sellers for announcing a seller rating system that effectively enabled buyers to identify those sellers that offered them a better experience, including free shipping.
While many small sellers complained, since they were unable to provide the advantages demanded in a competitive market, the system enabled eBay to incentivize the sellers that were bringing more buyers and therefore, more sales to the company. These sellers received a special badge that helped attract buyers. They also received other benefits, including discounts.
Another significant change in recent times is eBay’s focus on the fixed price format, which is the standard system of purchasing things online. During the analyst day held last month, eBay announced that fixed price sales may be expected to grow, while sales under the auction format would probably stay at current levels.
While a smaller entity, the company relied more on the auction format that attracted all kinds of sellers and buyers. But the growing ecommerce market demanded a rebuilding of the company’s image and the value of its brand, a failure to execute on which would be detrimental to the company’s growth.
For this purpose, eBay also increased much-needed investment in technology with the intention of improving its search engine and enabling easier navigation. The newly-introduced carting system (already available at many online retailers) is a positive and should facilitate the purchasing of multiple items on each visit to the marketplace.
At its analyst day, eBay stated that the marketplaces business would grow at a CAGR of 7-10% to $7-8 billion in 2013, while Forrester expects low double-digit growth for the industry over the next few years.
The reason for the lower growth rate at eBay is the flattish performance expected of the auction business, which would offset the increase under the fixed price format, as well as in other areas, including classifieds, advertising and Stubhub. eBay said that its efforts at search enhancements, catalog capability and improvements to buyer trust and protection were already paying dividends.
Estimates have been relatively stable since the company had its analyst day, although they are up significantly since the fourth quarter earnings announcement. We believe in management’s growth strategies and think that efficient execution will enable the company to win back market share that it previously lost to other players, such as Amazon.com Inc. (AMZN).
We have a short-term Hold rating on eBay shares, as indicated by the Zacks #3 Rank.
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