Web auction power eBay announced yesterday that it will combat the 14% slide its profits took in second quarter 2006 with a $2 billion stock buyback and plans to hike fees on fixed-price or “Buy It Now” listings.
While revenue at the San Jose, CA-based e-commerce company rose 30% to $1.41 billion for the quarter, profits declined to $250 million from $291.6 million in the same period last year. Revenue from eBay’s transaction service PayPal grew 39% year over year, and sales from Internet voice carrier Skype rose 26%.
CEO Meg Whitman admitted that eBay’s core auction business was the primary source of revenue weakness during the quarter. “We were stronger in PayPal and Skype and [comparison shopping search engine] shopping.com and had slightly lower growth rates in our core business,” she said in an analyst call announcing the results. Speaking about the auction channel, she said, “We think it could be stronger.”
EBay North America president Bill Cobb notified eBay users on Tuesday that the company will try to shift business back to the auction format by raising fees on instant-purchase sales of items priced at $100 or less. Eighty-three percent of the company’s current product listings are now offered at a fixed price rather than in auction format. Whitman said yesterday that sellers have opted for the “store inventory” listings because it costs them little to insert a large number of products at once.
“EBay’s innovations in listing formats have been a critical part of our successes since 2000,” she said. “Over time, however, we have seen sellers shift their listings from core auction style to fixed-price store inventory format because of the lower insertion fees.” That has eroded the buyer experience, she said, and cut into return visits, producing higher exit rates and fewer bids per listing, which has resulted in lower conversion rates.
The move to reassert eBay’s auction roots would seem to be in conflict with the rollout last April of eBay Express, which lets consumers buy selected new products at fixed prices, much as they do on Amazon.com and other e-tailing sites.
At the time, Cobb said eBay Express would target buyers looking for a “more conventional online shopping experience” and would attract new users to eBay’s auction services.
The eBay stock buyback will take place over the next two years and will involve $2 billion in company shares. Those shares have lost more than 40% of their value this year, but the announcement of the buyback and the increased listing fees sent eBay’s price up 5%.
Whitman downplayed the threat posed to PayPal by Google’s June introduction of a proprietary online payment mechanism, Google Checkout. “We are going to innovate as we always have,” she said.
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