Why StubHub Is Crucial to eBay’s Stagnating Marketplaces Business

-10.74%
Downside
51.35
Market
45.84
Trefis
EBAY: eBay logo
EBAY
eBay

eBay (NASDAQ:EBAY) has reported a slowdown in its total transaction revenues over the last few years. While core marketplaces revenues have slowed down, StubHub has continued to thrive for the company. Its transaction revenues surged from $4.8 billion in 2010 to almost $7 billion in 2014. However, revenues have remained at around $7 billion on an annualized basis since. As shown below, the company has reported a constant “take rate” or commission rate on the total gross merchandise volume (GMV) in recent years. Moreover, the total GMV or total value of all successfully closed transactions has also witnessed limited growth in recent years. Although the total active users have increased at 8% annually to 165 million in 2016, the average spend per users declined at a similar pace leading to stagnation in the total GMV reported by eBay.

Where StubHub Fits In

Relevant Articles
  1. Trailing The S&P By 20% This Year, Can eBay Stock Rebound?
  2. Down 4% YTD, What Should You Expect From eBay Stock?
  3. eBay Stock Is Down 7% YTD, What’s Next?
  4. What To Expect From eBay Stock?
  5. eBay Stock To Post Mixed Results In Q1
  6. eBay Stock Has Limited Upside

Despite unimpressive company-wide figures in recent years, it is important to take a look at key growth areas for eBay’s transactions revenues. As shown in the table below, StubHub revenues have grown at a faster pace than eBay’s core marketplaces revenues. StubHub’s GMV increased at a CAGR of almost 17% from 2014 through 2016. Correspondingly, its revenues increased at a CAGR of 22% from $629 million in 2014 to $937 million in 2016. Furthermore, StubHub has a significantly higher take rate (>20%) than the take rate of eBay’s core business (around 8%).

In recent years, StubHub has contributed significantly to eBay in two ways. First, the solid demand for online ticketing and StubHub’s robust market presence has helped increase its GMV. Moreover, the take rate for StubHub is higher than eBay’s other transaction services and has improved in recent years. This has helped keep the company-wide take rate stable at around 8.4%. Excluding StubHub, eBay’s take rate has fallen from 8% in 2014 to 7.7% in 2016 and through the first half of 2017.

StubHub’s Market Presence

One of StubHub’s primary competitors is Live Nation Entertainment (NYSE:LYV), which acquired Ticketmaster for $2.5 billion  in 2009. Live Nation’s ticketing segment generated almost $1.6 billion in revenues in 2014, which increased to over $1.8 billion in 2016. However, on comparing their respective GMVs, it is evident that Live Nation’s GMV is significantly higher. A key reason for that is the fact that online ticketing is only one of the segments in which Live Nation operates. Its core business segments include organizing live events, managing sponsors and advertisers as well as artists that perform. As a result, only about a third of the total tickets “sold” on ticketmaster.com and LiveNation.com are fee bearing tickets. Moreover, the company can effectively function on a lower take rate because ticketing is an ancillary revenue stream and not its prime source of income.

While 2016 revenues for Live Nation were almost twice the revenues generated by StubHub, its revenue growth has been much slower in recent years. Live Nation’s ticketing revenues grew at 8% on a y-o-y basis from 2014 through 2016 as compared to 22% for StubHub in the same period. This indicates a stronger growth prospect for StubHub as well as a positive outcome of its recent $165 million acquisition Ticketbis.

What Future Holds For StubHub & eBay

Going forward, we expect StubHub to continue to drive growth for eBay’s transaction segment. However, StubHub revenues have been unimpressive in the last couple of quarters, which the company attributed to a weaker event landscape and tough competition in the market. eBay’s management also indicated that this could be a short-term trend, with bookings expected to pick up in coming quarters.

The global ticketing market size is expected to grow at high single digits in the coming years, with Asia-Pacific, Latin America and Africa being crucial to growth. Smartphone and high-speed internet penetration in these regions is likely to boost mobile-based online ticketing as a result. Consequently, we forecast the total active users on eBay’s online transaction platforms to increase at around 3% over the next few years even as its core marketplaces business continues to stagnate. In addition, a higher mix of StubHub transactions could help improve the company-wide take rate, as shown below.

On the other hand, we forecast the spend per user to remain nearly constant in these years as a higher mix of ticketing GMV is expected to bring down the total spend per user (people typically spend less on purchasing event tickets as compared to retail items purchased in a year). As a result, the total revenue generated by eBay’s marketplaces could increase at a steady 5% from 2017 through 2019.

We have a $32 price estimate for eBay, which is more than 10% lower than the current market price. eBay’s stock price has fluctuated between $28 and $38 in the last year. You can modify the interactive charts in this article to gauge how changes in individual drivers for eBay can have on our price estimates for the company.

See our complete analysis for eBay

View Interactive Institutional Research (Powered by Trefis):

Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research