Tech Check

Ebay Continues to Struggle


For all the big changes, for all the big economic challenges facing the nation, for all the big bargain hunting going on both in stores and on the web, you'd think eBay would finally be breaking out of the doldrums that have faced this company for the past couple of years.


Analysts are looking for 36 cents a share on just shy of $2 billion. And indications are that eBay will at least meet, if not beat the consensus. In fact, eBay has quite the track record of meeting or beating, having only missed its own estimates once since 1999, and the average beat in the past 10 quarters is by around 10 percent.

That's the good news. The not-so-good news is that Amazon , which reports its quarterly results tomorrow, continues to run circles around eBay, and seems to be doing everything in the marketplace that eBay has been unable to. Citi's Mark Mahaney continues to wax negatively around eBay shares, saying in a recent note that "our eBay fundamentals call for Q2 remains negative," since eBay is likely to report its third consecutive, year over year revenue decline quarter. Citi also expects a material year over year decline in pro forma operating margins, down 380 basis points to 28.1 percent. "We continue to believe Q2 will be the trough quarter for eBay," Mahaney writes.

Beyond the headline numbers of revenue and pro forma EPS, Mahaney will be paying close attention to US gross merchandise volume, which should decline somewhere between 5 and 10 percent, though Mahaney anticipates a 9 percent drop; internationally, he expects GMV to be flat; Marketplaces transactions revenue should decline about 18 percent year over year, though a decline of 15 percent or less would be bullish; PayPal transactions should grow between 4 and 8 percent with Mahaney expecting the figure to be about 7 percent, and active user growth should be flat to up 5 percent.

Still, for eBay, the conference call will be important. CEO John Donahoe has made some key changes in eBay's fee structure, cutting some upfront selling fees, letting users offer as many as five items for auction every 30 days without having to pay the usual listing fees, etc. But his commentary on whether eBay has finally come up with a way to stop bleeding users and stem the revenue slide in its top units will be key. Guidance is also important, with the Street looking for flat performance in the third quarter, of 35 cents a share on $1.999 billion in revenue.

I spoke with Donahoe earlier this year at the company's analyst day here in San Jose and he was very optimistic that the changes he was instituting were the right ones at the right time. We talked a little about Skype and back then, he was cagey about a spin off. We now know that eBay will be spinning off the unit next year, so look for a progress report on that front tonight as well.

Ebay has its work cut out for it.

I've written before that eBay runs the risk of suffering what Yahoodid: watching the market it serves pass it by while a competitor - in this case Amazon -- continues to surge. Now the challenge is to recapture some of the magic that served eBay so well so many years ago. That's gonna take more than one quarter, or even two or three. The problem is eBay has had a lot of time to figure out ways to turn things around and still hasn't come up with any. eBay's biggest problem might be that it risks becoming a dullard in what should be a dynamic, exciting segment of the market that in an economic climate like this one should be a shopper's first stop. Instead, they're shopping elsewhere, and eBay investors, despite a 36 percent run in eBay shares this quarter, might be left holding the bag.

Questions?  Comments?