- eBay could be slowing down as per ChannelAdvisor's report.
- Data theft and Google's algorithm update appear to be damaging eBay's Q2 prospects.
- eBay valuations are attractive barring the risks from the recent developments.
Less than a month ago we had discussed how eBay’s (NASDAQ:EBAY) search listing setback and data theft issues could hurt its core e-commerce business. ChannelAdvisor’s recent report suggests that the possibility has gotten stronger. Earlier this week, ChannelAdvisor, the provider of e-commerce support services came out with its latest e-commerce report on comparable sales for the month of May 2013. The report indicates that eBay might be slowing down, adding to shareholders’ concerns. Investors will find some comfort in the fact that eBay is not shutting down its same-day delivery service as was earlier reported by VentureBeat.
eBay’s Recent Troubles
Around 21 May 2014, two separate events came to the fore, raising concerns around eBay’s core business. First, Google’s (NASDAQ:GOOG) Panda 4.0 search algorithm update thrashed eBay’s search listings taking away its page 1 slot for a number of search queries. Given the large amount of traffic that e-commerce portals acquire from Google, this was definitely a bad news.
Almost simultaneously, eBay reported that it had been a victim of a cyber-attack that leaked users’ information. The fact that PayPal’s data is stored on a separate secure network is a saving grace. However, the development is likely to have shaken users’ confidence with reference to the safety of their data on eBay.
eBay Could Slow Down In Q2 2014
Even though it’s tricky to gauge the impact of these developments on eBay’s business, ChannelAdvisor’s report indicates that they might have had an impact.
As per ChannelAdvisor’s report, eBay’s Same-Store Sales (SSS) have fallen to 11.5% from April’s 14%. The slowdown is reportedly led by the auctions segment with an 11% slowdown as opposed to a 13% growth in the fixed price segment. eBay's fall in the auctions segment could partially be due to the shift from auctions to fixed price sales. However, the fact still remains that eBay could be slowing on the whole if ChannelAdvisor’s report turns out to be accurate. In contrast, going by the ChannelAdvisor report, Amazon is poised to beat its Q2 2014 revenue guidance.
Whether or not the slowdown is because of the factors in question, what would worry investors is that the report shows a consistent slowdown from a growth of 17.8% in March. Further, ChannelAdvisor’s analysis of eBay’s Same Store Sales (SSS) before and after the data theft indicates a tangible impact on eBay’s SSS. One should note that both the security breach and the ‘Panda attack’ surfaced around the same time, making it difficult to pin the change down to any one cause.
If the drop is indeed due to the recent developments, eBay is likely to face similar headwinds at least in the short term. One would then expect at least 1 disappointing quarter if not more.
eBay’s Same Day Delivery Not Shutting Down
Contrary to VertureBeat’s report, an eBay official responded to the rumour saying that the company is not mulling the closure of its same day delivery service called ‘Now’. Arch-rival Amazon (NASDAQ:AMZN) as well as Google offer a same day delivery service. So, the absence of a similar service would have proved to be a handicap and put additional pressure on eBay. Further, customers never like a service being taken away. Especially if it means delivery in under 2 hours, making it one of the fastest delivery services. The announcement will come as a relief to both customers and investors.
That said, not all of VentureBeat’s (VB) report is wrong. The same official did confirm that expansion plans of the eBay same day delivery service have been shelved. Until late last year, eBay wanted to expand the operations of its ‘Now’ service from the current 4 cities to 25 cities. The company has evidently changed its mind about that.
eBay Stock Valuation
On the whole things don’t look too great for eBay in Q2 2014. It remains to be seen how these events will impact its stock valuations. eBay’s stock price has been down by about 5% since 21 May 2014. Prior to the events discussed, we found eBay’s valuation to be attractive at a Price/Sales multiple of 3.74 given its revenue growth and profitability.
Net profit margins in Q1 2014 were depressed due to a one-time tax hit sustained by repatriation of funds from overseas locations. That apart eBay has been delivering decent growth and profitability. We retain our ‘hold’ rating on eBay until more reliable/official data is at hand.
To see eBay’s latest stock price movement, click here (NASDAQ:EBAY)