Ebay slows but still hits targets

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Ebay’s core domestic business slowed in the most recent quarter as the e-commerce company struggled to cope with changing behaviour by sellers in response to its attempts to create new ways of selling online.

However, the auction company reported overall revenues and earnings in line with Wall Street forecasts, countering fears that the weakness that hit Yahoo’s latest earnings would prove to be more widespread among the big internet companies.

Ebay’s shares edged up some 4 per cent in after-market trading, though they have still fallen more than 40 per cent this year on fears that the company’s high-growth days are behind it.

Meg Whitman, chief executive, said revenues from Ebay’s US marketplaces had slowed as sellers had shifted their listings away from the company’s traditional auction format and into the newer “story inventory format”, where they have not been charged a separate listing fee.

As a result, Ms Whitman said, people coming to Ebay to look for items to buy had been flooded with too many goods for sale, many of them indistinguishable from each other, prompting many to turn away from Ebay altogether.

To counter this effect, which first hit its first-quarter earnings, Ebay had already removed the store listings from its search results. However, this had proved insufficient to halt the boom in store listings, Ms Whitman said, further undermining the value of its market. As a result, revenue growth from the US marketplace business dropped to 20 per cent in the latest quarter, from 30 per cent in the first quarter and 39 per cent in the final months of last year.

The company announced a new marketing push to promote the benefits of its traditional auctions and introduced a listing fee for store items in an effort to reverse the deterioration.

Overall, Ebay’s revenues grew by 30 per cent, to $1.411bn, with its PayPal division again making up for slowing e-commerce growth. “While Q2 growth met our expectations. . . we wanted to be stronger,” Ms Whitman said.

The company’s pro-forma operating profit margins also suffered, falling by five percentage points to 32.6 per cent in the period. While 2 percentage points reflected the lower gross margins form new businesses such as Skype, the rest resulted from growing operating costs.

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