Does the Pullback Create an Entry Point for Ebay?

EBay’s shares have traded down approximately 6.5% the past week, which has created an intriguing entry point for a name that is well-positioned to capitalize on favorable, sustainable long-term trends in mobile and offline commerce.

It’s difficult to point to a single catalyst pulling down shares the past week, though we believe concerns about second-quarter revenue growth and profitability trends, misunderstandings about online sales tax collection in the U.S., and lingering questions about PayPal’s longerterm profitability as it moves offline have played a part in the underperformance.

With respect to recent trends, ChannelAdvisor (a channel management platform for online retailers) noted that merchants selling on eBay experienced a 20.5% increase in same-store sales during April (representing a high-water mark for 2013) with fixed price transactions (up 18.8%) notably outpacing the 15% overall e-commerce growth rate reported by comScore.

Additionally, the expanded user base will create additional economies of scale, which should also open up additional monetization opportunities in the years ahead. Regarding online sales tax collection, the latest piece of legislaturewas approved by the U.S. Senate in early May, but still faces a long road from becoming law (there appears to be less support for the proposal in the U.S. House of Representatives, with House Speaker John Boehner saying he will not support the bill on May 8).

Still, even if this iteration of the proposal doesn’t pass, a federal standard allowing states to force online sales tax collection will be put in place within the next several years. However, we expect the Marketplace Fairness Act to have only a modest impact on gross merchandise volume (GMV) and total payment volume (TPV) trends. As it currently stands, the legislation proposes that sellers with less than $1 million of in out-of-state revenue would still be exempt from collecting sales tax. Although eBay doesn’t provide detailed seller figures, we estimate that this provision would exempt approximately 80%-90% of eBay’s sellers, suggesting that online sales tax collection will have a modest impact at best. Additionally, most of the impacted companies would be well-established sellers, so we are skeptical they would alter their listings tactics just to avoid sales taxes collection. We also believe eBay could potentially recoup any lost GMV and TPV by providing merchants with sales tax collection technology services, which is already an offering among their portfolio of seller tools.



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