What to Watch When eBay Reports Earnings
eBay (NASDAQ: EBAY) will report its first-quarter earnings on Wednesday and investors shouldn't expect anything dramatically different from the mid-single-digit growth we have seen the past several quarters. The important items on the agenda will be hearing what management has to say about its current initiatives to position the company for long-term growth in a tough competitive landscape.
The Amazon problem
The brick-and-mortar retail industry has been struggling with low-growth or even declining traffic while Amazon.com (NASDAQ: AMZN)just keeps growing and growing taking away significant chunks of market share.
Retailers are finding it very difficult to compete with the speed and convenience of Amazon Prime and its two-day free shipping option. Once you sign up, you are compelled to shop Amazon first to make the $99-per-year subscription fee worth it. One research survey by Deutsche Bank AGfound that Prime customers' spending increases 100% after signing up.
Image source: eBay Inc.
It could be too little, too late, but eBay will finally offer fast delivery options for millions of listed items. Later this summer, eBay plans to release new filtering options on its website to help buyers easily find items with a one-day or two-day delivery window. Also, eBay will release a new feature that guarantees three-day shipping, or less, on 20 million items across the marketplace. Millions of these items will ship for free.
This still lacks Amazon Prime's breadth of selection with fast shipping options, but more online shoppers are expecting free and fast shipping today thanks to Amazon's growing influence so there's no question eBay's new filtering options for fast delivery is designed to thwart the encroachment of Amazon's reach across the entire retail spectrum.
The new shipping features were just announced on March 20 by CEO Devin Wenig on the company's blog, so expect to hear more about this on this week's earnings conference call.
Structured data progress
Structured data has been eBay's main strategic initiative to attract customers. To help buyers find items more easily, management has been focused on organizing data from the millions of listings posted on its marketplace using artificial intelligence. Wenig recently wrote on the company's blog how structured data will make eBay a more personalized shopping experience for each user:
eBay is on the right track here given the success other retailers have reported with personalized shopping. Nike'snew SoHo store in New York has had great success with a more personalized shopping experience. Customers are given one-to-one attention by employees and have easier access to the product they are looking for. Lululemon Athleticahas also reported success with its own personalized shopping experience in its stores.
As Amazon continues to grab chunks of market share of total online retail sales, it is imperative for other retailers to rethink how to best serve customers. Customers today desire faster, affordable shipping options with an easy online/mobile shopping experience.
Clarifying the brand message
Another strategic pillar for eBay is redefining and clarifying what eBay stands for in the competitive landscape. In the fourth quarter of fiscal 2016, eBay advertised on TV for the first time in two years. After early efforts to "sharpen and amplify the eBay brand, we saw good traffic growth from new eBay users in our key markets, which is a positive early sign," according to CEO Devin Wenig (transcript via Seeking Alpha).
In the near future, management will begin marketing the new brand message worldwide across TV, social media, and outdoor displays.
Positioning itself as a retailer
The initiatives of structured data and brand messaging are part of eBay's mission to position itself more as a retailer. This might sound backward given the problems of the industry, but it's what eBay needs to do to compete.
With millions of items for sale on eBay's website, it's important for the company to organize these items as regular inventory to better understand what it's selling and to better connect users with those items. As more items are processed with structured data, and the brand is better defined, eBay will be able to market items around important retail moments like Christmas shopping and other important retail holidays.
Management's guidance
Based on previous guidance, the recent initiatives will not make dramatic changes overnight for the company and we should expect to see more single-digit growth on the top line. For the first quarter, management has guided for currency-neutral revenue growth of 4% to 6%. Earnings per share are expected to be flat year over year in a range of $0.46 to $0.48.
Of course, if eBay fails to meet these expectations, the stock likely won't be treated kindly by the market. But assuming there are no negative surprises, all ears will be on what management has to say about the future.
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John Ballard has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon, eBay, Lululemon Athletica, and Nike. The Motley Fool has a disclosure policy.