Can “Promoted Listings” Drive Revenues For eBay?

August 10th, 2016 by Trefis Team
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Recently, eBay  (NASDAQ:EBAY) expanded the product categories that can use its advertising feature, “Promoted Listings”, which was launched last year. This advertising product allows sellers to increase the visibility of their products and attract traffic to their listings on eBay by prominently featuring their products on the website.  eBay charges the seller only if a sale is made by clicking on the advertisement and this feature is available to sellers with an eBay stores subscription. We believe this product can increase eBay’s transaction revenues, as it will drive traffic towards products and increase buyer awareness.  The transaction revenue segment is the most valuable division for eBay, accounting for more than 70% of its valuation, according to our estimates. While advertising revenue in the cost per sale model might be limited, it can increase the average spend per user on eBay’s platform, which according to our estimates is a key driver of transaction revenues.

Seller-Friendly Promotion Tool

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eBay’s “Promoted Listings” charges a seller only if an actual sale is made through the advertisement. In the “cost per sale” model, eBay is bearing the risk of an advertisement not converting into a sale and leading to unproductive advertising space. While this model impacts monetization, eBay is using this seller facilitation tool to support sellers on its platform, rather than as an advertising revenue generation tool.  According to our estimates, Transaction Revenues is the most valuable division for eBay,  accounting for more than 70% of its valuation.

Increasing the volume and value of transactions on eBay’s platform can improve the valuation of the company.  The company’s efforts to support sellers in driving sales on its platform can generate higher transaction revenues for eBay. As per our estimates, the average spend per active user on eBay’s platform will increase moderately from $508 in 2016 to nearly $520 by the end of our forecast period.

Over the past few years, eBay has witnessed a significant decline in the average spend per active user from a figure of nearly $636 in 2013 to $518 in 2015. This decline primarily started in 2014 after the cyber-attack on the company.  However, eBay is now taking several measures to increase transaction volumes on its website including the Promoted Listings initiatives. The company is making its platform more efficient and easier for sellers and buyers and working on a brand building exercise. If through these measures it is able to reach the 2013 level of average spend per active user ($ 640) by the end of our forecast period, there can be a nearly 15% upside to our price estimate.

Promoted Listings is an advertising tool for sellers on eBay’s platform that functions as a seller facilitation tool to attract more sellers and increase the number of transactions on its platform. This might not drive advertising revenues for the company, but eBay should benefit from this initiative as the average spend per user on its website increases.

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