Why eBay could still make a comeback in the second half of 2014 (Part 4 of 7)
eBay’s take rate continues to decline
The company’s take rate is the commission eBay (EBAY) charges on the goods and services sold through its platform. Its platform consists of eBay Marketplaces as well as its payments system, Paypal. Of late, eBay’s take rate has declined. As the chart below shows, the take rate has fallen from 3.79% in 2Q13 to 3.53% in 2Q14. During the company’s conference call to announce 2Q14 earnings, eBay’s management mentioned that the declining take rate isn’t a worrying sign, as it’s offset by healthy revenue growth.
Healthy revenue growth is important for eBay to remain relevant in the e-Commerce market, currently led by Amazon (AMZN). eBay’s revenue grew by a decent 13% in the last quarter over the corresponding quarter a year ago, and as long as that happens, exchange-traded funds (or ETFs) like the DJ Internet Index Fund (FDN), Nasdaq Internet Portfolio (PNQI), and Enhanced U.S. Large-Cap ETF (IELG) should benefit, as they have decent exposure to eBay.
Why is eBay’s take rate declining?
Management mentioned that the biggest contributor towards a declining take rate is the faster growth of its Paypal unit compared to eBay’s Marketplaces business. Paypal’s take rate is much lower than eBay Marketplaces. Plus, within Paypal, large merchants have lower take rates and they’re growing fastest. These are some reasons why the blended take rate for eBay overall is declining.
eBay’s other businesses also have lower take rates
eBay mentioned that it was forced to reduce the take rate on its StubHub platform in the last quarter because competitors reduced their pricing. StubHub is a platform where people can buy or sell tickets related to events like concerts, sports, theater, and Broadway. eBay also mentioned that its daily deals business is gaining more traction. But, again, this business has a lower take rate. This impacts the company’s overall average take rate.
Browse this series on Market Realist:
- Part 1 - Why did eBay’s operating margins decline in 2nd quarter 2014?
- Part 2 - Why eBay’s 2014 database breach was one of the worst ever
- Part 3 - Why eBay’s recovery from its data breach will be slower in Europe
- Information Technology