EBAY - Ebay

[Luma21]

On 4/22/2021 at 3:22 PM, DooDiligence said:

For many years now, eBay has given buyers a 1% rebate on all purchases. They've been doing this since way before the pandemic. In addition, they will periodically send out limited time offers of 5%, 8% or 10% rebates. They call this eBay Bucks.

A buyer would accumulate eBay Bucks in their account and on a predetermined date they would be issued a certificate to be used for purchases. If you had $110.58 in eBay Bucks, you would be able to use it as a direct $110.58 credit on new purchases.

I have saved a ton of money by waiting for the special offers to make larger purchases.

As I said before, they have officially done away with automatic 1% eBay Bucks on all purchases, as of 1 April. They ususally send out a special offer every month or so & I haven't seen one yet.

You could infer that sales are strong now and the program is no longer needed, or that they simply wanted to cut the expense.

I've searched through their financial reports and found no mention at all of "eBay Bucks" so I don't know how they expense this item. eBay Bucks certificates must be used for purchases by a certain date and many buyers probably let their eBay Bucks expire unused, so eBay may include a liability to account for payouts & then subsequently release the unused portion back into earning at a later date. Again, I was unable to find anything, and have no idea how much this will affect earnings & cash flow in the short term.

They've also recently forced sellers to use "managed payments", which effectively cuts PayPal out of the loop. They still allow buyers to use PayPal, but eBay now takes the lions share of payment processing, which will be an additional 5% +/- of purchases.

This is one of those businesses that I've avoided investing in for years, largely because I hate dealing with them, but where the alternatives are few & far between. Kind of like a cable provider that you hate because their customer service sucks, but you keep using them anyway. Equating hate for using the business doesn't necessarily make for a bad investment.

I do believe they have a sustainable business, but intense competition, flat to declining revenues, a highly leveraged balance sheet & a management team that I think are a bunch of douches, make this a no go for me still. I will continue selling on their platform, and the next few quarters may look a lot better due to the aforementioned initiatives.

My due diligence is crap & you shouldn't rely on anything I say.

Thank you for the reply! Recently I started a DD on this company and the first thing I noticed was the poor conduct of business operations during the previous years, which prevented them to fully exploit their core market place; so allocating badly their capital in investments decisions. 

G&Having said that, I believe Ebay has different competitive advantages towards its competitors like Amazon and Alibaba: Ebay doesn't have inventory and this is one of the fundamental reasons that allows the company to earn higher Gross margin and return on invested capital. Strictly related to the former point are Shipping costs. Ebay does not ship its own items, but pushes its customers to take the responsibility for the delivery of their products, allowing them to save a considerable amount of money over the long term and at the same time simplifying printing and fulfillment ( as I could understand from the experience of other customers ). In other words, they have more flexibility in that regard compared to their peers that translates in: less inventory = less COGS.

Recently, they have started to focus more on how to improve their operational and financial efficiency. They've conducted a review of their product portfolio and in 2020/2021 they sold StubHub and Ebay Classified Group, respectively for $4B and 9.2B ( the Adevinta deal of $9.2B became something about $11B in the latest months, thanks to the rising Adevinta stock price). With those deals, Ebay can now better allocate their capital in the core marketplace achieving better returns. 

From a financial point of view they've reversed the trend related to the SG&A growth compared to Revenue. In fact, from 2013 to 2017 the former increased by 17.32%, while Revenue grew by only 12.9% ( the result of an inefficient cost structure). Instead, from 2016/2017 to 2020 the increase in SG&A was 1.45% against a growth in revenues of 10,5% ( not to bad, I guess ). Subsequently, the SG&A as a percentage of revenue decreased by 1% and EBIT margin grew by 3.6% ( 26.4%) along with the Net profit margin. 

I'm still learning about the business, but I do think that those points I've mentioned earlier are a good starting point and a clearly change in the way the management team is conducting operations. I'm curious how it will develop the managed payment systems (maybe they will reduce credit risk in that way?) and if they will improve buyers and sellers feedback and communications.