How Can Facebook Marketplace Impact eBay?

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Facebook (NASDAQ:FB) recently introduced a new “Marketplace” feature to help formalize local buying and selling on its platform. This was already happening via the “Facebook Groups” section previously, but the new feature puts Facebook in direct competition with established players such as eBay (NASDAQ:EBAY) and Craigslist. eBay has plenty to think about now, considering its hasn’t been able to turn around its marketplace sales in the last couple of years and comparable sales of its auctions marketplace have fallen consistently in double-digits since the start of this year. ebay-12

Although Facebook’s new feature is primarily aimed to tap local sales at the moment, it is important for eBay to think of strategies to counter this emerging competition, considering that scaling up its marketplace operations would be the logical next step for Facebook in due course.

eBay’s New Strategy Vs. Facebook’s User Base Advantage

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eBay’s recent change of strategy to develop and project itself as a market for niche products positions it in competition with Craigslist and now Facebook Marketplace. Recently, eBay’s (NASDAQ:EBAY) Chief Executive Officer pledged to attract 100 million new shoppers to its platform with ads aimed at millennials and a more focused push in emerging markets. He indicated that eBay did not necessarily want to become a platform for online shopping for everyday products, and this should enable it to create a unique position for itself (rather than competing directly with Amazon) and attract more users to its platform. One of eBay’s goals is to offer richer unique inventory and bring more boutique sellers to its platform who can offer products that buyers cannot find elsewhere.

While eBay has a significant advantage in terms of an organized marketplace platform, vast seller network, global acceptance and experience as a marketplace auction site for nearly two decades, Facebook gains the upper hand in terms of number of users, user engagement and ease of communication with sellers/fellow Facebook users. Also, finding credible sellers and products in one’s local community would probably be easier on Facebook considering the benefits of having mutual friends (with the seller), personal user profiles (for seller verification) and an easy feedback mechanism.

eBay’s User Base & Impact On Valuation

Compared to eBay’s 164 million active users, Facebook has over 1.7 billion monthly active users (MAUs), of which 450 million users frequent buy-sell Facebook Groups each month. This provides Facebook a significant advantage in creating a marketplace platform, and eBay could take a hit in its user base expansion projections. eBay’s active user count is a key driver of its valuation, and we expect it to increase from 165 million in 2016 to around 213 million by 2023.

A faster or slower pace of growth in users impacts eBay’s valuation significantly. As eBay works on several initiatives to make its platform easier for buyers and sellers, including the push to attract millennials and users in emerging economies, the total active users on its platform are expected to increase steadily. If the company is able to meet the target set by its CEO and add 100 million new active users in the next three years (and continue a steady growth in users thereafter) there could be a more than 30% upside to our price estimate. However, if the company’s user base increases to only about 180 million by the end of our forecast period, there could be a 10% downside to our price estimate.

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