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Why eBay expects low revenue and margin growth for StubHub

Puneet Sikka

Must-know: Why PayPal is driving eBay's mobile growth (Part 4 of 7)

(Continued from Part 3)

eBay forced to reduce StubHub ticket prices in the last quarter

StubHub is a platform where people can buy or sell tickets related to events like concerts, sports, theaters, and Broadway. eBay (EBAY) acquired StubHub for $310 million in 2007. In the last few years, eBay has developed a mobile app for StubHub to work on different mobile platforms such as BlackBerry (BBRY), Microsoft’s (MSFT) Windows Phone, Apple’s (AAPL) iOS, and Google’s (GOOGL) Android.

During the conference call to announce earnings, eBay mentioned that it’s redesigned the checkout process for StubHub ticket purchases based on customers’ feedback. It mentioned that it’s changed the practice of showing separate charges to customers at the time of checkout to making it an upfront all-inclusive price. Although this change was made to give customers a better picture of ticket pricing, it created a perception that eBay raised its ticket prices.

StubHub’s competitors reduced the charges on their tickets during the last quarter. So to maintain its leadership position, eBay was forced to reduce the take rate or the commission charged on the tickets on its StubHub platform.  Take rate is the commission eBay charges on the goods and services sold through its platform. eBay mentioned that this pricing reduction will impact StubHub’s revenue and margin growth in the near future.

Reduction in StubHub’s take rate one of the factors for decline in operating margins

StubHub’s ticket price reduction is one of the factors why eBay’s operating margins declined in the last quarter. Reduction in eBay’s average take rate is also influenced by lower take rates of its PayPal and Braintree businesses. Since StubHub, PayPal, and Braintree are faster growing businesses than eBay’s Marketplaces business, the average take rate and also the operating margins could continue to decline in future. As the above chart shows, we are already seeing the signs of declining operating margins.

Continue to Part 5

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