2ndUPDATE: EBay To Target 'Secondary Market,' Drive PayPal Growth
11 Mars 2009 - 10:48PM
Dow Jones News
EBay Inc. (EBAY) executives said Wednesday they aim to remake
the struggling Internet giant and accelerate growth by harnessing
the potential of its PayPal online payments unit and focusing on
the "secondary" e-commerce market.
Chief Financial Officer Bob Swan told analysts the company
expects to generate total revenue of $10 billion to $12 billion in
2011, an increase of as much as 41% over eBay's $8.5 billion in
revenue last year.
Speaking at eBay's Analyst Day meeting in San Jose, Calif., Swan
said eBay expected non-GAAP earnings to grow by mid-single digits
through 2011. Swan noted that the forecasts were contingent on the
market returning to some sense of normalcy over the next few
years.
Swan added that the company was targeting cost savings of $2
billion over the next three years by simplifying the organization,
reducing processing costs and improving the customer experience in
order to reduce support costs.
EBay has been under extreme pressure to convince investors that
it has a plan to weather the deepening recession and compete
against fixed-price retailers such as market leader Amazon.com
(AMZN).
Donahoe acknowledged that eBay had been slow to adapt to the
shifting e-commerce landscape, but he vowed to step up the pace of
change at the lumbering giant.
"I will be ruthlessly objective to how I run the company," he
said during his first Analyst Day since he became CEO last
year.
Donahoe said the company's marketplaces unit would focus on the
global "secondary market" in which partners would sell liquidated
and discontinued products. He also declared that PayPal was
becoming a second core business for the company.
Scott Thompson, PayPal president, later said the company's
payments unit expects to double the size of its business over the
next few years, processing $100 billion to $120 billion worth of
transactions by 2011.
"We expect to process 14% of global e-commerce transactions by
2011," he told analysts.
Thompson said PayPal would achieve that growth by expanding its
penetration on eBay, increasing its share of non-eBay transactions
and by expanding into adjacent markets.
Thompson predicted that PayPal could generate $4 billion to $5
billion in revenue by 2011, although margins were expected to be
squeezed over the next two years as the company works to integrate
Bill Me Later.
EBay's payments business, which represents about 28% of the
company's total revenue, grew 25% in 2008 to $2.4 billion.
Lorrie Norrington, president of eBay's marketplace unit, said
the company sees a growing opportunity in becoming a platform on
which to sell "secondary" products, almost all of which are
currently sold offline through inefficient supply chains. She said
the "secondary" market represents a $500 billion opportunity for
eBay.
Asked whether eBay was ceding the online retail market to
Amazon.com, Donahoe said: "We're going to focus on where we can
win."
But company executives could only provide a few examples of
retailers or liquidators that might be interested in using eBay as
a platform to sell discontinued, open boxed or refurbished
products. They noted that online merchant Buy.com recently started
listing its products on eBay.com.
"The sweet spot will be as much with intermediaries as with
retailers," Donahoe said in an interview.
Gene Munster, analyst at Piper Jaffray, said he was encouraged
to hear steps eBay aims to take to improve its marketplace, but
noted the company must follow through in executing on its plan. He
added that he was concerned about eBay's reluctance to name
partners for its secondary market" strategy.
"It's still a big unknown," Munster said.
Donahoe predicted that eBay's marketplace revenue would grow
more slowly than the e-commerce market in 2009, track market growth
in 2010 and surpass market growth in 2011. The company expects
changes to eBay's marketplaces unit to drive revenues to $5 billion
to $7 billion by 2011.
Asked about whether eBay might sell Skype, Donahoe reiterated
that he sees no significant synergies between the Internet
telephony unit and the rest of the company's portfolio. But he also
noted that Skype remains a great stand-alone business that is not a
distraction to the rest of the company.
EBay said Skype was expected to generate $1 billion in revenues
in 2011.
-By Scott Morrison, Dow Jones Newswires; 415-765-6118;
scott.morrison@dowjones.com