Bloomberg.com is highlighting the turnaround in sales for EBay’s (EBAY) online marketplace in their Chart of the Day. The firm that pioneered the online auction process had reported sales declines for fixed-price items for at least twelve consecutive months dating back to July 2008 (the first month they were tracked by ChannelAdvisor), but retailers selling their goods on EBay have seen sales tick up in the past two months. While this study is not comprehensive of all merchants on EBay, it is representative of an important step in the progression of EBay from an auction house to a focus on selling fixed price items as well.
Sales growth among the 3,000 merchants ChannelAdvisor tracks was driven by fixed-price sales, an area EBay Chief Executive Officer John Donahoe has emphasized as he tries to move the company beyond its roots as an auctioneer. EBay has reported three straight quarters of falling revenue as buyers and sellers fled to rival sites.
“It appears that EBay’s transition from a primarily auction format to a fixed-price format is finally at the point where the growth in fixed-price is making up for the decline in auction format, yielding an overall increase,” ChannelAdvisor CEO Scot Wingo said. — Bloomberg.com 10/7/2009 Chart of the Day
Consensus analysts’ estimates are calling for overall revenue growth from EBay of less than 1% in the third quarter. The rise of fixed-price items is an encouraging trend as EBay’s auction business has started to drift away to lower cost competitors. Whether this strategy will in fact be a winner for EBay is too early to tell, but analysts are becoming more bullish on the stock. According to Yahoo Finance, upgrades outnumber downgrades 6 to 0 in the last six months, and earnings estimates for this year and the next are both trending higher.
At Ockham, we continue to believe that EBay is Greatly Undervalued at the current price level. EBAY has been beaten down by the market, as there have been legitimate questions with regards to the business model. EBay is starting to show that they are making strides in diversifying its business away from an auctioneer to a complete ecommerce powerhouse.
For some time now, EBay has seemed sort of adrift at sea. They undoubtedly have productive assets in the online marketplace and Paypal payment processing, and other assets that have great potential like Skype. Now, evidence has started to emerge that the EBay’s somewhat painful transition is starting to work out, and that can only be good news to EBay investors.