eBay Slips As Bidders Balk

This post first appeared on Minyanville.

So much for selling to the highest bidder.

Online auction powerhouse eBay (EBAY) reported weak fourth quarter numbers yesterday, as revenues slipped from a year ago for the first time in the company’s history. Attributing its troubles to a stronger dollar (which hurts revenues from overseas markets) and the global economic slowdown, CEO John Donahoe is spearheading efforts to shift sales away from its core auction business, focusing instead on traditional, fixed price sales.

According to Bloomberg:

• Revenue fell 6.7% from last year to $2.07 billion.
  
  
• Earnings slipped to $367 million, or $0.29 per share from $0.39 per share in Q4 2007.
  
  
• Revenue in its mainstay marketplace business slipped 16%.
  
  
• First quarter 2009 earnings guidance of $0.32 - $0.34 per share was lower than the expected $0.39 per share.

Many investors had been hopeful eBay would thrive during the economic downturn, as consumers seek out more attractively priced goods. However, with buying activity drying up and other online commerce sites like Amazon.com (AMZN) pushing auction platforms of their own, eBay is facing an increasingly challenging environment.

As it has rotated its business away from its core auction business buy acquisitions of StubHub, PayPal, Skype and launching Kijiji to compete with free classified listing site Craigslist, eBay has increasingly exposed itself to broader economic conditions. And with 55% of its marketplace business coming from outside the US, the global economic slowdown isn't providing eBay much benefit from geographic diversification.

eBay also said its PayPal unit posted strong results, with revenues rising 11% to $623 million. Of note, the company’s online credit service, Bill Me Later saw particularly high activity. PayPal earns interest income like a credit card company if users opt for Bill Me Later, which gives them the option of deferring payments.

Deferring payments, apparenly, is a popular choice in today's economy.

When Going Gets Tough, Tough Get More Credit

The following post first appeared on Minyanville.

The only thing more insatiable than American consumers' desire for more credit is lenders' ability to dream up new ways to extend it.

Online auctioneer eBay (EBAY) is teaming up with GE Money (GE) to offer instant credit access to customers using its PayPal payment solution. According to Dow Jones, GE Money CEO Margaret Keane said, "eBay buyers will find deferred payments to be an extremely easy way to buy what they really want now and plan their payments in a way that best fits their budgets." Where exactly these new purchases will fit into those overstretched budgets isn't entirely clear.

In a nod to personal responsibility, eBay expects the new program will encourage buyers to bid on items they otherwise couldn't afford. The company said credit approval can happen in as little as 30 seconds and should lead to "increased sales and higher selling prices." GE will reportedly retain the risk if payments aren't made.

eBay isn't the only retail company getting in on the credit extension act. Retailers like Macy's (M), Kohls (KSS) and Gap (GPS) all offer their own credit cards to facilitate more shopping. But recently, as consumers have struggled to keep up with monthly payments, these once-profitable lending units have been jettisoned. JP Morgan (JPM) now owns Kohls' and Circuit City's (CC) card businesses. Just last week the bank made a deal to buy a piece of Target's (TGT) floundering credit division.

Although the move may boost eBay's sales, it won't help America's debt-dependent economy move toward more sustainable levels of consumption. Having tapped out home equity lines, credit cards and to some degree retirement accounts, consumers now have another way to spend money they don't have.


Position in TGT