By Greg Bensinger
EBay Inc. last year fought to keep hold of PayPal in a
contentious battle before reversing course. As it plans to spin off
the fast-growing payments unit on Friday, the e-commerce company
may wish it had held its ground.
The company's second-quarter results, its last as a united
entity, tell a story of two online giants headed in seemingly
opposite directions. While PayPal can point to double-digit revenue
growth and a slate of recent acquisitions, eBay is beset by
shrinking sales and is jettisoning assets.
EBay on Thursday also said it was selling off its eBay
Enterprise unit for $925 million, less than half the $2.4 billion
it paid for the division four years ago, while its core marketplace
posted sales below PayPal's for a second straight quarter.
Indeed, when the e-commerce company re-emerges as a stand-alone
company on Friday it will more closely resemble the eBay that
bought PayPal in 2002 to help accelerate growth. But today it faces
the ever-growing threat of Amazon.com Inc., as well as new
e-commerce upstarts.
Devin Wenig, eBay's incoming chief executive, seemed to
acknowledge the company's challenges in a call with analysts,
pointing again to lasting effects from a 2014 data breach and a
change in how Google Inc. shows search results. His counterpart,
Dan Schulman, meanwhile was setting a lofty goal to effectively
quadruple use of the PayPal app.
"EBay has faced a number of issues that have led to growth
challenges, including the Google demotion," said Carlos Kirjner, a
Bernstein analyst. "The key is whether they will be able to
recover; they need to find new ways to bring in new users."
On Thursday, eBay posted a 6% sales bump to $4.65 billion,
including results from the Enterprise unit, and a profit of $83
million. Excluding items, the company's earnings beat analyst
expectations. In 4 p.m. trading, the shares were up 3.4% to $65.59
on the Nasdaq.
In eBay's core marketplace, which comprises mostly eBay.com as
well as ticket-seller StubHub, sales fell 3% to $2.12 billion, the
second straight quarterly decline after five years of increases. A
year earlier, the division posted a 9% sales increase. PayPal's
sales grew 16% to $2.26 billion.
EBay pointed to currency fluctuations as a primary reason for
the sales shortfall. Without that impact, the company said
marketplace sales would have increased 5%.
EBay's 6% increase in active buyers, to 157 million, was less
than half the rate of last year's second quarter. PayPal's growth,
too, slowed to 11%, or 169 million accounts, from 15% in the
year-earlier period.
Nearing its 20th anniversary later this year--a mark celebrated
by Amazon this week--eBay presents a starkly different profile than
its larger Seattle rival. While it has tried for years to shed its
reputation as a repository for one-off items, eBay has had only
mixed success in convincing brands to sell their new goods on the
site.
Amazon, meanwhile, has a massive network of warehouses from
which it ships many new products, a growing Prime loyalty program
and nearly 280 million customers accounts. Amazon is expected to
approach $100 billion in sales this year and commands a market
capitalization of $221 billion, whereas eBay's sales--minus
PayPal--will likely fall under $10 billion this year with a market
cap of about $35 billion, based on early market indications.
"We made solid progress but we have a lot of work ahead of us to
maximize eBay's significant potential," said Mr. Wenig. "Our
absolute priority is to improve our competitiveness and drive more
stable profitable growth."
As the PayPal spinoff nears, eBay has been cleaning house. In
June, it sold back to Craigslist Inc. a 28.4% stake it had held in
the classified-ad site since 2004 for an undisclosed amount, while
also settling remaining litigation. Earlier this year, eBay pared
about 2,400 jobs, representing roughly 7% of its workforce.
What remains is primarily eBay.com, a mix of fixed-priced items
and auctioned goods, as well as StubHub. EBay still relies on its
millions of sellers to ship their merchandise to customers, which
over the years has yielded inconsistent shipping speeds and
reliability.
Some analysts have speculated that eBay could be an attractive
takeover target by bigger rivals such as Alibaba Group Holding
Ltd., or private-equity players.
Mr. Wenig on Thursday said he would focus his attention on
small- and medium-size sellers, who bring "a mix of inventory, from
unique items to discounted and seasonal inventory to liquidation
goods."
EBay reiterated a June filing in which it said it expected
revenue from its marketplace division to remain flat or grow as
much as 5% next year, not including the impact of foreign exchange
fluctuations.
Notably, eBay's gross merchandise volume, the amount of sales it
helps facilitate, fell 2% to $20.1 billion, though it would have
been up 6% without the impact of currency fluctuations. PayPal's
net payment volume, by contrast, jumped 20% to $65.9 billion.
PayPal's Mr. Schulman recently oversaw the planned $890 million
acquisition of Xoom Corp., and said on Thursday he hopes to compel
users to open the company's primary mobile application two to three
times weekly, compared with that amount per month today.
"That is a significant stretch goal for us," Mr. Schulman told
analysts.
Write to Greg Bensinger at greg.bensinger@wsj.com
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