eBay, the online marketplace whose addictive auction system made it the pioneer of the ecommerce model that is now such an existential threat to the huge bricks and moral retail sector, is in danger of becoming irrelevant. That appraisal may seem overblown in the context of eBay’s share price reaching historical highs as recently as February this year. In early 2009 eBay’s share price sat at around $5 and early this year had broken into the upper reaches of $44.
780% growth over nine years is something anyone investing online in the stock market would tear your arm off for. And yet, a few short months later and there is the distinct feeling that eBay is quickly going the way of Yahoo – a digital star of the late 1990s and early noughties whose contemporary relevance and future is unclear.
The auctions that grabbed the imagination of the first generations of internet users enthused at the prospect of snagging a bargain, has not proven to be an ecommerce model with longevity as the digital space has matured. At least, not for the mass market of day-to-day online buying. It’s been phased out in favour of fixed prices. The problem is that as a marketplace for fixed-price goods sold by third party vendors, eBay has been left in the shadow of Amazon. Then Alibaba also moved into western markets and Facebook turned its attention to the revenue growth opportunity that a digital marketplace with a huge captive audience of social media users represented.
eBay has 177 million daily active users of its ecommerce platform. Facebook has an audience of 2.6 billion. Amazon has an almost 50% share of ecommerce sales in the USA and eBay 7%. That’s still a huge market value and eBay is still actually growing as a business. Revenues grew 6% over the last quarter to $2.6 billion. 6% revenue growth would ordinarily be a very strong number. The problem is the sector average is 15% and Amazon recorded 29% growth. So eBay’s growth is less than half of that of its sector and almost 5 times less than its biggest rival.
eBay’s share price is currently a multiple of 12 on its expected earnings. Amazon’s value to future earnings multiple is at around 71. But still, those investing online still consider Amazon a strong medium to long term bet. Most would avoid eBay despite its continued growth. If the grandfather of ecommerce doesn’t pull a rabbit out of its hat sometime soon, eBay is in danger of becoming as relevant as Yahoo by the end of the century. The FAANGs would do well to take note.