eBay Inc. - netstudies215

eBay Inc.
Company Profile
Publication Date: 12 Nov 2008
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eBay Inc.
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TABLE OF CONTENTS
TABLE OF CONTENTS
Company Overview..............................................................................................4
Key Facts...............................................................................................................4
SWOT Analysis.....................................................................................................5
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eBay Inc.
Company Overview
COMPANY OVERVIEW
eBay is an online company that provides online marketplaces for the sale of goods and services. It
also provides commerce, platforms, online payments services and online communications offerings
to individuals and businesses. The company primarily operates in the US. It is headquartered in San
Jose, California and employs 15,500 people.
The company recorded revenues of $7,672.3 million during the financial year ended December 2007
(FY07), an increase of 28.5% over FY06. The operating profit of the company was $613.2 million
during FY2007, a decrease of 56.9% compared to FY06. The net profit was $348.3 million in FY07,
a decrease of 69.1% over FY06.
KEY FACTS
Head Office
eBay Inc.
eBay
2145 Hamilton Avenue
San Jose
California 95125
USA
Phone
1 408 376 7400
Fax
1 408 369 4855
Web Address
http://www.ebay.com
Revenue / turnover 7,672.3
(USD Mn)
Financial Year End
December
Employees
15,500
NASDAQ Ticker
EBAY
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eBay Inc.
SWOT Analysis
SWOT ANALYSIS
eBay is an online company which provides online marketplaces for the sale of goods and services
and other online commerce. It also provides platforms, online payments services and online
communications offerings to individuals and businesses. eBay has a strong market position. Strong
market position provides competitive advantage and better visibility to the company. However,
hacking or unauthorized access to computers has resulted in losses to companies and their customers.
eBay's major business operations are web-based. Such instances of attacks make the company
vulnerable, and also erode customer confidence. This could have an adverse effect on its credit
card sales as consumers would hesitate to provide their personal information.
Strengths
Weaknesses
Strong market position
Business model
Strong technical platform
Declining operating margin
Litigations
Opportunities
Threats
Strategic acquisitions
Increasing popularity of used goods
Growing search engine advertising
Increasing online consumer spending
Hacking and spoofing
Rising labor wages
Intense competition
Strengths
Strong market position
eBay has a strong market position. It is one of the largest global online auction website, with operations
in 28 countries. The company was ranked 3rd in the list of America's Most Admired Companies and
383rd in the list of America's largest corporations, in 2007, by Fortune magazine. In brand value
rankings, the company was ranked 48th with a brand value of $7,456 million in 2007. eBay has
276.3 million registered users. As of FY07, the number of active users on various eBay.com platforms
was approximately 83 million as compared to approximately 82 million at the end of 2006. At any
given time, there are approximately 100 million listings on eBay worldwide, and approximately 6.6
million listings are added per day. A strong customer base, and associated strong market position,
provides a competitive advantage and gives eBay considerable bargaining power.
Strong technical platform
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eBay Inc.
SWOT Analysis
The company has strong technical platform that includes marketplaces, payments and
communications. Marketplaces platform enables online commerce through a variety of platforms,
including the traditional eBay.com platform and other online platforms, such as classifieds websites,
as well as Half.com, Rent.com, Shopping.com and StubHub. Payments platform consists of PayPal
that enables individuals and businesses to securely, easily and quickly send and receive payments
online. Communications consists of Skype, enables VoIP communications between Skype users
and provides low-cost connectivity to traditional fixed-line and mobile telephones. The wide array of
websites enables the company to bring together millions of buyers and sellers every day on a local,
national and international basis.
Business model
eBay operates on a unique business model which unites buyers and sellers in an online marketplace.
This business model overcomes the inefficiencies of traditional marketplaces, which tend to be
fragmented and offer a relatively limited variety of goods. This business model also saves on the
transaction costs per sale, due to absence of intermediaries. In particular, this model has been
successful in addressing markets of new and scarce goods, end-of-life products, and used and
vintage items, which would otherwise be difficult to locate and purchase. The simplicity and flexibility
of this model has enabled eBay to increase the number of members and hence increase its revenue
base.
Weaknesses
Declining margins
The company's margins declined, due to increasing operating cost pressures. For instance, eBay's
sales and marketing, product development, general and administrative expenses increased to
$5,296.2 million in the FY07 compared to $3,290 million in the FY06. Expenses as a percent of net
sales increased to 69% in the FY2007 compared with 55.1% in the FY2006 and 50.4% in the FY2005.
The rising expenditure has impacted the company's margins which resulted in its operating margin
declining from 31.7% in 2005, to 23.8% in 2006 and 8% in 2007. Also the company’s net profit margin
declined from 18.9% in FY06 to 4.5% in FY07. A declining operating margin indicates a weak cost
structure and declining net profit margins indicate a high debt burden.
Litigations
eBay has been involved in various litigations in the past years. In February 2007, StubHub, a
subsidiary, was sued for violating the Fair and Accurate Credit Transaction Act because it, allegedly,
printed receipts containing more than the last five digits of a credit card number or the expiration
date of a credit card by showing the same on an on-screen receipt.
In March 2007, a case was filed against eBay and PayPal, another subsidiary, for monopolizing
markets through various anticompetitive acts and tying arrangements. In May 2007, Netcraft filed a
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SWOT Analysis
lawsuit against eBay alleging that eBay and PayPal infringed two of its patents entitled "Internet
billing methods." Flexiworld Technologies filed a lawsuit against eBay alleging that Skype infringed
its patent titled "Apparatus, Methods, and Systems for Anonymous Communication" in October 2007.
In October 2007, PartsRiver filed a lawsuit alleging that eBay infringed its patent relating to search
methods; and Flexiworld Technologies filed a lawsuit alleging that Skype (a subsidiary) infringed its
patent titled “Apparatus, Methods, and Systems for Anonymous Communication.”
In December 2007, Klausner Technologies filed a lawsuit alleging that eBay, Apple, AT&T, AT&T
Mobility, Comcast, CSC Holdings, GotVoice and Simulscribe infringed Klausner's patent titled
'Telephone Answering Service Linking Displayed Data with Recorded Audio Message.' These
litigations could have a material effect on the company's profits, investors' confidence and could
also result in negative publicity for the company.
Opportunities
Strategic acquisitions
eBay made many acquisitions in the recent years. In February 2007, eBay acquired StubHub. eBay
acquired a minority stake in GittiGidiyor.com, a leading online marketplace in Turkey in May 2007.
eBay acquired StumbleUpon, an early-stage company that helps people discover and share content
online, for an aggregate transaction value of approximately $75 million in May 2007. eBay acquired
ViA-Online, a leading auction management software company in Germany that operates Afterbuy.com
to enable professional trading on eBay.de and other online marketplaces in October 2007.
The company continued to acquire entities in 2008. In Denmark, eBay acquired Den Bla Avis and
BilBasen, providers of leading online classifieds sites in Denmark. The acquisitions strengthen eBay’s
Danish and global classifieds portfolio.The company also plans to acquire Bill Me Later; the acquisition
will strengthen eBay’s online-oriented payments portfolio. Expansion of operations by acquisitions
would increase the company's market penetration opportunities. This in turn would increase eBay's
market share and further boost its bargaining power.
Increasing popularity of used goods
Since 1998, eBay Marketplace has facilitated the reuse of an estimated $100 billion in goods. Industry
trends indicate that US consumers are buying used goods as a way to save money. In 2008, according
to eBay sources, 75% of adults purchased used (pre-owned) goods to save money. More than a
quarter of adults who had purchased used goods in the past six months (since August 2008) saved
76% or more off the retail price of the last item they purchased.
With economic concerns facing many Americans, more than half of pre-owned shoppers are turning
to online sites such as eBay to purchase used items.The most popular items purchased secondhand
within the past six months include consumer electronics and entertainment, which 56% of pre-owned
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SWOT Analysis
shoppers have purchased, and clothing and accessories, which more than half of pre-owned shoppers
have purchased. In addition, pre-owned shoppers have purchased used home-related,
automobile-related and collectible items within the past six months. Through eBay Marketplace,
eBay can leverage the consumer’s preference for used goods and drive top line growth.
Growing search engine advertising
Search engine marketing is currently the largest segment within online advertising, total online
accounting for approximately $7.2 billion in 2006. Search engine advertising is expected to grow at
a CAGR of 15% from 2006 to reach $13.1 billion in 2010. By 2010, search is likely to account for
47% of online advertising budgets, up from 42% in 2005. Increasing online advertising spending will
enable eBay to increase its revenues and to improve profitability.
Increasing online consumer spending
US online retail spending is expected to increase from $81 billion in 2005 to $144 billion in 2010,
growing at a CAGR of 12%. By 2010, 71% of online users are likely to shop over the internet as
compared to 65% in 2005. Also by 2010, the internet would influence about half of the total retail
sales, compared to 27% in 2005. eBay facilitates online shopping through its websites such as
eBay.com, Half.com, Rent.com, Shopping.com, Kijiji, Gumtree.com, LoQUo.com, OpusForum,
Marktplaats.nl, mobile.de and StubHub. Additionally, the alliance with ViA-Online, an auction
management software company in Germany that operates Afterbuy.com enables the company on
professional trading on eBay.de and other online marketplaces. The company could further improve
its online services by expanding its offerings and gain from the expected growth in online sales.
Threats
Hacking and spoofing
Hacking or unauthorized access to computers all over the world has resulted in major losses to
companies and their customers. It is believed that the top 50 attackers defaced approximately 2.5
million websites all over the globe. According to the Computer Security Institute and San Francisco
Federal Bureau of Investigation's Computer Crime and Security Survey, there was an exponential
increase in website defacement. Over 140 million records of various companies have been
compromised from February 2005 to January 2007, out of which approximately 80 million were due
to hacking attacks.
For instance, in January 2007, TJX suffered an unauthorized intrusion into its computer systems
that process and store information related to customer transactions. About 94 million customers'
credit and debit card details were stolen. The company estimated its liability for the breach to be
$118 million after tax charges in the second quarter of the fiscal year 2008. In addition, TJX expects
to incur future non-cash charges of approximately $21 million (after tax).
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SWOT Analysis
Also, in 2007, data of over 1.3 million users was stolen from US job website Monster.com. In 2008,
Hannaford Bros. grocery stores in the New England suffered a theft of an estimated 4.2 million credit
and debit card numbers. Also in 2008, data of more than 56,000 customers was stolen from Advance
Auto parts. eBay's major business operations are web-based. Such instances of attacks make the
company highly vulnerable and also have a bearing on the customers' confidence. This could have
an adverse effect on eBay's credit card sales as consumers would hesitate to provide their personal
information.
Rising labor wages
Labor wages are rising in the US. In recent times, tight labor markets, increased overtime, government
mandated increases in minimum wages and a higher proportion of full-time employees are resulting
in an increase in labor costs, which could materially impact the company's results of operation. The
federal minimum wage rate in the US, which had remained at $5.15 per hour since 1997, has
increased to $5.85 per hour from July 2007. The federal minimum wage rate is further expected to
rise to $6.55 an hour in July 2008 and then to $7.25 an hour effective July 2009.
eBay employs approximately 15,500 employees across the company as of December 2007. Out of
this, 9,500 employees are located in the US. The company's success depends on its ability to attract
and retain efficient employees in all segments of its business. Increased labor costs in the US could
increase overall costs, resulting in a decline in its profitability.
Intense competition
Although eBay is the dominant player in online auctions, the company still competes with other
ecommerce companies, primarily Amazon, for business. In addition, there are a number of niche
businesses that directly compete with the company such as Autobytel (new and used cars). In
addition, Overstock.com has recently launched an online auction business. Further, eBay has been
slow to infiltrate the Hong Kong market, which was entered by Yahoo in 1999. Increased competition
from established players such as Yahoo could erode eBay's market share and reduce its profitability.
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