Ebay Rises and Falls During Recession

The recent, official announcement by the National Bureau of Economic Research that America is in a recession, which began in December 2007 and may continue into 2009, bares devastating losses for most businesses; but not entirely for the worldwide online auctioneer Ebay. Headquartered in San, Jose, CA, Ebay has been around since 1995 and appeals to individuals who sell items to supplement their incomes or to advertise their businesses. Ebay provides 50,000 categories ranging from cars to books. In addition to item listings, many Ebay sellers have online stores that they maintain for $15.95 per month and are listed under stores.ebay.com. Although Ebay has reported a decline in the areas of gross merchandise volume, seller price, web traffic, and growth rate of active Ebay users, it has experienced an increase in size of its business divisions, item growth, classified listings, and 2008 third quarter revenue.

As for the downturns, Ebay's chief financial officer, Bob Swan, clarifies in a conference call in July 2008 that Ebay has encountered a 6% drop in the average selling price due to the sluggish economy. Likewise, the gross merchandise volume (total profit of items sold) dropped in April 2008. Another area of concern, the web traffic has declined 3% year-over-year according to a 2008 Nielson Online Report. This same report also reveals a slowdown in the growth rate of active Ebay users, which was reported as 1% in April 2008 in contrast to 10% in the same quarter last year.

On the plus side, Ebay has met growth in the size of their business that has expanded more than 50% within the last two years according to Bob Swan. The addition of classified and advertising has especially helped to develop Ebay. Ebay's main partners are PayPal that produces 20% of revenue and Skype that produces 6% of revenue. Bob Swan also declares that the number of items have grown by 11% in Quarter One of this year and by 10% in Quarter Two. CEO John Donahoe adds that Ebay has seen an increase of 19% in Quarter Two of this year in new product listings and an increase of 13% in Marketplace revenue. Most significantly, the third quarter revenue in October 2008 has risen to $2.12 billion from 228 million during the third quarter of last year as indicated in shareholder files (files.shareholder.com).

Realizing that some losses are inevitable during this recession, Ebay is prepared for financial lags as denoted by Bob Swan's projection in January 2008 that its e-commerce would recede during the year. John Donahoe has named three objectives that will regenerate the weak areas of the business by attracting users. He mentions facilitating and securing the use of Ebay's sites, providing incentives, and expanding PayPal. Currently, Ebay has decreased listing fees by 70% for the buying option "Buy It Now" as well as lengthening listing periods from seven days to 30 days according to Ebay's Corporate Factsheet (news.ebay.com).

Sources

Crutsinger, M. (2008, December 1). It's Official: US Has Been in a Recession All Year. York Daily Record.

"Ebay CFO Says E-Commerce Growth to Slow in 2008." http://www.reuters.com

"Ebay Inc. Corporate Factsheet." http://news.ebay.com/fastfacts.cfm

Ebay Inc (2008, Oct. 15). "Ebay Inc. Reports Third Quarter 2008 Results." http://files.shareholder.com

Lev-Ram, M. (2008, April 16). "Ebay Sales Up 24%, But User Growth is Weak." Techland.

Sridharan, V. (2008, July 16). "Ebay Growth Grinding to A Halt, Q2 In Line, Q3 Guidance Weak (EBAY)." Alley Insider.