eBay Q3 2022 Earnings Commentary
Note from Liz: Opinions expressed are mine alone and should not be taken as financial advice.
eBay released Q3 2022 results November 2, 2022- full presentation here.
Full transcript here.
Important stats from the press release:
- Revenue of $2.4 billion, down 5% on an as-reported basis and down 2% on an FX-Neutral basis
- Gross Merchandise Volume of $17.7 billion, down 11% on an as-reported basis and down 5% on an FX-Neutral basis
- GAAP and Non-GAAP EPS per diluted share of $(0.13) and $1.00, respectively, on a continuing operations basis
- GAAP and Non-GAAP operating margin of 23.9% and 28.9%, respectively
- Returned over $421 million to shareholders in Q3, including $301 million of share repurchases and $120 million paid in cash dividends
As usual, I'll leave the financial analysis to experts in those fields and instead focus on highlights, insight and commentary from an experienced seller perspective.
Active buyers fell once again - down 11% to 135M. However, that number includes users from Turkish marketplace GittiGidiyor that will be rolling off as eBay winds down operations there, bringing the active buyer number down to 133M.
CFO Steve Priest was quick to point out this is a "more modest step down" in active buyer numbers than previous quarters - more modest perhaps, but still concerning that eBay continues on a downward trend that has seen active buyers fall below where they were in Q1 2018.
For the third straight quarter, eBay has chosen not to disclose active seller figures, leaving us to guess once again it's likely not a pretty picture.
eBay announced the acquisition of collectible card game marketplace TCG Player closed on October 31, ahead of the original forecasted Q1 2023 date. CEO Jamie Iannone also talked a lot about how eBay is using fitment to earn trust in Motors Parts & Accessories, but didn't give any details about what role the acquisition of myFitment may be playing in those efforts.
eBay continues to lean in to the focus verticals strategy, but despite executive assurances that the vertical strategy will also drive cross category sales, sales in other categories remain flat.
Jamie talked about eBay's newest authentication program for fine jewelry over $500, saying they are seeing 90% customer satisfaction with the program.
I'd be interested to see the results if they polled sellers in the program.
On sneakers, eBay said:
eBay updated its Authenticity Guarantee service for sneakers, recently expanding the program’s eligibility to more sneakers, offering new protections for eligible items, aligning final value fees and partnering with FedEx to provide free shipping labels for sellers to ship sneakers to authentication centers.
That's an interesting bit of corporate speak.
"Aligning final value fees" = increasing final value fees.
"Expanding program eligibility" = we no longer have a minimum price, so shoes as low as $0.01 might be sent to the authenticator, but we also changed the terms so that only select models of certain brands are eligible. Which models? Oh we can't tell you that...you just have to list your shoes to find out!
It's possible eBay has expanded eligibility but they've also expanded their ability to make adjustments to criteria on the fly with no notice.
On the T&C page, eBay lists the eligible brands, but not the eligible models within those brands, so there is absolutely zero transparency now as to how many different types of sneakers may qualify for authentication at any given time.
"Offering new protections for eligible items" = we changed the rules so sellers actually have less protection now.
The new seller protection policy requires sellers to provide full address proof of delivery to the authenticator now where previously they just had to prove it was shipped to the correct city/zip code.
Sellers have been asking for a month now for specific details about what documentation eBay will accept as full address proof of delivery - so far eBay has declined to answer that basic question, despite the policy going into effect November 1st.
"Partnering with FedEx to provide free shipping labels" = we announced this program would be happening in October, then when sellers couldn't find it, we said "oops, sorry, it's actually a phased rollout and we promise you'll have it by end of November, worst case."
Tech Led Reimagination
The company continued to invest in simplifying the listing process for sellers, recently completing the migration of all desktop sellers to one unified listing experience globally, which eliminates multiple legacy tools and enables faster innovation.
The "new" listing experience is really just the latest iteration of the Unified Listing Experience eBay has been trying to force on sellers for a year and half - and many sellers still don't like it.
Features that used to be easily accessible without additional clicks are now hidden behind multiple clicks, drop down menus, and toggles - like the custom SKU option, scheduled start times, and certain shipping options.
To further support sellers with building their brand and increasing buyer engagement, eBay upgraded its video and photo capabilities. Sellers can now upload videos to their storefront and listings to showcase themselves and their merchandise in a new, engaging way. eBay also increased the number of listing photos from 12 to 24 at no additionalcost in all categories except vehicles.
Videos in stores and listings have been a thing for over a year now.
The increase from 12-24 images was announced at eBay Open in September, but sellers were told it would be rolling out "sometime in November."
Really eBay? One of the only actually new features you've announced recently, and it's as simple as adding more image slots in the listing form, and...it's still not actually here yet?
But Jamie keeps saying he's happy with the pace of the tech led reimagination. 🤦♀️
Promoted Listings Ads
eBay's first party advertising products, primarily driven by Promoted Listings, delivered $249 million of revenue in the third quarter, up 19% on an as-reported basis and up 27% on an FX-Neutral basis.
The company's total advertising offerings generated over $290 million in revenue in the third quarter, representing roughly 1.6% of GMV.
It's no surprise ad revenue is up, considering eBay has been running at breakneck speed to cover every last pixel on the site with ads.
But with irrelevant ads clogging up search and 100+ competitor ads crammed on to every listing page, is eBay sacrificing the buyer experience?
Jamie gave some credit for the increased ad rev to eBay's three "new" (not really new) ad products - but then flubbed his way through naming two of the three before trailing off and forgetting Promoted Listings Express for Auctions. 🤦♀️
Our three new products contributed double digits quarter over quarter. So certainly in Q3 it had some one time step ups from product optimization and from that portfolio expansion of three new products the uh external, advanced and our um other products...but when I think about the ROAS, we're still having a really healthy ROAS.
Quick somebody rescue Jamie, he's lost! I'd really love to know how he thinks he can count any of those as portfolio expansions for Q3 2022, when they were all live and available to sellers in or before Q3 2021.
External Promoted Listings launched July 2021, Advanced CPC was a phased roll out starting in March and extended to all qualified sellers on the platform in September 2021, and Express for Auctions was also introduced in September 2021.
Jamie had referred to algorithm and ad rate suggestion improvements earlier in the call, which may be the one time step ups mentioned here.
Investments in AI have resulted in improved search algorithm performance and more accurate ad rate recommendations that are increasing conversion.
This is one factor driving up adoption of Standard Promoted Listings. In Q3, almost 2 million sellers adopted at least one ad product, and our coverage has expanded to over 600 million listings.
However, as one reader reminded me in the comments below, there was one other event that happened in Q3 that Jamie didn't mention - the increase of the minimum ad rate for Promoted Listings standard from 1% to 2%, effective July 11.
In the Q & A segment, Richard Kramer from Arete Research had an excellent question about ads. Unfortunately, Jamie gave a typical non-answer.
Can you quantify or track what sort of GMV resulted from the incremental $40 million your sellers would have invested in ads this quarter? Are you able to directly see that that advertising investment that gets made is lifting GMV in some material way?
In terms of the advertising money that our sellers are spending, the majority of what we collect is via our CPA based program which is Promoted Listings Standard which is a direct attribution program, so as we're able to drive incremental sales for them, we monetize that.
So, we've added the new products, like the CPC based products in Promoted Listings Advanced but what we're doing from a CPA standpoint has a direct tie to GMV.
I'll help you out here Jamie - he was asking the same thing many sellers are asking: what do sellers actually get for their ever increasing ad spend investment?
It's safe to say some amount of sales that end up being funneled through Promoted Listings likely would have still occurred organically if the listing was not promoted.
It's also safe to say eBay is increasingly tilting the scales in favor of sales occurring through the promoted instead of organic version of a listing.
Just as one example, in 100% of instances in my testing, if a listing is enrolled in PL, eBay will show the promoted version of the listing on a direct, unique item number search that can literally only return a single result.
Just to be clear - the only reason a buyer would do this type of search is if the seller provided them the listing ID or they have the listing ID from a previous purchase. IDs are unique to each listing and searching by that number will only ever find that exact listing.
In that scenario, the buyer already knows exactly what they want and is likely ready to purchase. There are no competing items to be returned in the search, thus absolutely no need to "promote" it, yet eBay consistently chooses to show the promoted version so they can collect ad fees on a sale that would have happened without promotion.
It's not at all fair or accurate to say that sale represents a material lift in GMV that would not have occurred without promotion - and again, that is just one example.
How much of the ad spend is actually driving increased GMV and how much is just paying eBay an extra % for a sale that would have happened any way?
At risk of sounding like a broken record - the tech led reimagination has gone from a crawl to a standstill, the vertical focus remains out of touch with and doesn't appear to be benefiting the vast majority of sellers, and eBay is showing no signs of pulling out of the death spiral of lost buyers any time soon (even if the decline is "moderately" slower).
If you want to see what other sellers are saying, check out this eBay community thread - one highly experienced Motors seller had some particularly interesting comments about eBay's claims of improving fitment.
Really frustrating to see their claims about Motors:
"The company continued to increase trust in the Motors Parts & Accessories category, building on several quarters of improvements to the P&A fitment experience like modernizing its taxonomy and integrating fitment-based technologies into search, merchandising and advertising recommendations. eBay is now able to make fitment more pervasive throughout the end-to-end experience, including adding highly visible trust signals throughout the buyer journey in the U.S. and Canada, and reducing the number of steps required to find parts. The company also expanded adoption of My Garage, leading to more personalized shopping on every visit."
Umm, the fitment and taxonomy haven't really changed, lol. It's same as always! There's no "reduced number of steps". It's still the same old compatibility charts. Meanwhile, eBay had already owned WHI/Nexpart for years, which is one of the industry leading tools for vehicle fitment. And they still can't even get the compatibility chart working correctly.
They rename the vehicle history you have searched to "My Garage", give it a UI downgrade where you have to scroll to the side rather than choose from a list, and pretend it's a new feature. Meanwhile it always existed, just without having to scroll.
The bugs reported years ago (that I had personally given to several members of leadership) STILL have not been fixed.
So it really strikes a nerve that they keep claiming they've done so much with fitment/etc. Literally all they did was start paying for marketing, but the actual functionality hasn't changed, despite their marketing claims.
With that said, I'm not exactly wishing they do major changes, either. As eBay's "upgrades" are often downgrades in other areas, "My Garage" as a perfect example. And I'm honestly scared that whatever they do might harm business, as their major changes for the category traditionally have.
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