Online auction company eBay has faced challenges thus far in the payments business, in addition to dealing with a security breach. Now even eBay’s auction services have shown decreased revenue for the year.
The company released an earnings report in mid-October, which showed that eBay earned $673 million last quarter. This represented a 2% decrease from the same period one year ago.
However, despite overall revenue for the quarter rising 12% to $4.35 billion, analysts and investors underestimated the profit and revenue totals. The company had previously forecast the year’s revenues at $18 to $18.3 billion this year, but the expectation has lowered to $17.85 to $17.95 billion; shares in eBay stock fell more than 1% in after-hours trading.
Although as many as 26% of American internet users have participated in some form of an online auction, that number may be holding steady. The online auction unit, eBay’s marketplaces division, saw a 9% increase in revenue over the past year, but the unit’s rate of growth is slowing.
A report on eCommerce Bytes stated that the lack of growth in the marketplace was due primarily to the cyber attack, along with changes to Google’s algorithm that affected eBay’s search engine optimization.
The increased revenue has been used to support eBay’s recent plan to split its online auction services from PayPal, which has seen significant growth.
John J. Donahoe II, eBay’s CEO, used the earnings report to back up the decision in a statement: “Rapidly changing competitive environments in commerce and payments underscore the opportunities for eBay and PayPal, and highlight how each business will benefit from the focus and agility of being an independent company.”
Analysts also commented that the split could give eBay the ability to find new ways to expand the marketplace and its payments business by merging with other companies.
One analyst, Robert S. Peck from SunTrust Robinson Humphrey, pointed out the main challenge for the marketplace division. “There’s only so much demand for the auction style environment,” he said. The question for eBay, Peck said, is “How can you expand the market for fixed price items?”
This is something that eBay’s biggest competitor, Amazon, has cornered. Although eBay offers some fixed-price “buy it now” items, it is mostly known for its online auctions.
But Peck said that this may be a good thing for eBay, as many small businesses are wary of Amazon’s own competition with small and medium-sized merchants.
“Many retailers don’t trust Amazon, so eBay can potentially swoop in and work with them there,” he said.
The other competitors for eBay could still pose a threat, though. The Alibaba Group, a Chinese eCommerce company, is slowly moving into the West, where it and eBay will compete with Walmart. Apple has entered the payment market with Apple Pay, and even Google is interested in online and mobile payments.
