Key Challenges Besetting eBay’s Marketplaces Segment

Though eBay (NASDAQ:EBAY) will spin off its payments business later this year and will continue to explore strategic alternatives for its enterprise business, its core marketplaces segment has been beset with several challenges. It has faced traffic-related challenges owing to a security breach and to updates in the Google Panda algorithm. We expect these headwinds to persist in the near term, as it could take a few more quarters before the company can fully overcome these challenges. Moreover, the significant appreciation of the U.S. dollar has impacted the company’s cross-border trade business, and certain demographic trends have caused a drop in selling prices on the platform. On account of these challenges and increased competition in the e-commerce market, we have forecast the transaction revenue growth in the marketplaces segment to somewhat lag the overall e-commerce market over our forecast period.

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Last Year’s Security Breach And Google Panda Update Continues To Impact Traffic

The key factors that have significantly impacted traffic levels on eBay’s marketplaces include last year’s security breach and Google Panda updates. Though the security breach took place in Q1 2014, the same went undetected until May 2014. As a result of this breach, the company had asked all its users to change their passwords as a safety measure. This led to a slowdown in buying activity as a large number of buyers avoided the site out of caution. While financial information was reportedly not compromised, other user details such as names, address, birth details, etc were most likely accessed by hackers. The negative experience created by this development continues to impact eBay’s marketplaces segment. We believe it will take a few more quarters at least until eBay is fully able to reverse the impact of this security breach.

The Google Panda update in May 2014 impacted eBay considerably as the latter was penalized for factors including inadequate content on listings, poor management of paid search strategies, as well as other issues. Search engine traffic is an important source for eBay, considering about a quarter of its total traffic is generated through this source. Search engine optimization (SEO) has historically been a complicated issue for eBay, as millions of third-party seller-generated listings result in large amounts of unstructured data on its platform. Though eBay is now focusing on a more stable and a long-term SEO strategy by creating structured data catalogs, it requires manual processes that take a long time to complete. We will continue to monitor the progress of these efforts in the coming quarters, as this is critical for the company’s long-term growth.

Significant Appreciation Of Dollar Has Caused A Decline In Exports

Cross-border trade represents a significant portion of the eBay’s marketplaces segment, in which the U.S. business is positioned as a net exporter. The significant appreciation of the U.S. dollar against the euro, pound and Australian dollar during 2015 has impacted this business. We expect these headwinds to continue to weigh on the segment in the near term.

Higher International Mix Is Pulling Down Average Selling Prices

Another issue that eBay is grappling with is the increasing proportion of international sellers on its marketplaces. This has resulted in lower FX-neutral average selling prices on the platform. The shift in user demographic towards emerging markets and a younger audience has also contributed to this trend. In Q4 2014, these factors caused a 4% year-over-year decline in FX-neutral average selling price on eBay’s marketplaces. We expect these factors to become even more prominent in the coming future.

Seller Policy Changes Have Created Issues In The Recent Past

Finally, the tightening of seller policies at eBay has created significant dissatisfaction among the company’s sellers. We suspect that these changes have induced  thousands of sellers to abandon  eBay and migrate to other marketplaces. We believe this is also a significant issue since negative seller feedback could lead to reputational loss for eBay in the long run.