eBay, Inc. SWOT Analysis.
Content
eBay Inc.
Company Profile
Publication Date: 21 Apr 2008
www.datamonitor.com
Datamonitor USA 245 5th Avenue 4th Floor New York, NY 10016 USA t:+1 212 686 7400 f:+1 212 686 2626 e:[email protected] Datamonitor Europe Charles House 108-110 Finchley Road London NW3 5JJ United Kingdom t:+44 20 7675 7000 f:+44 20 7675 7500 e:[email protected] Datamonitor Germany Kastor & Pollux Platz der Einheit 1 60327 Frankfurt Deutschland t:+49 69 9754 4517 f:+49 69 9754 4900 e:[email protected] Datamonitor Hong Kong 2802-2803 Admiralty Centre Tower 1 18 Harcourt Road Hong Kong t:+852 2520 1177 f:+852 2520 1165 e:[email protected]
eBay Inc.
ABOUT DATAMONITOR
Datamonitor is a leading business information company specializing in industry analysis. Through its proprietary databases and wealth of expertise, Datamonitor provides clients with unbiased expert analysis and in depth forecasts for six industry sectors: Healthcare, Technology, Automotive, Energy, Consumer Markets, and Financial Services. The company also advises clients on the impact that new technology and eCommerce will have on their businesses. Datamonitor maintains its headquarters in London, and regional offices in New York, Frankfurt, and Hong Kong. The company serves the world's largest 5000 companies. Datamonitor's premium reports are based on primary research with industry panels and consumers. We gather information on market segmentation, market growth and pricing, competitors and products. Our experts then interpret this data to produce detailed forecasts and actionable recommendations, helping you create new business opportunities and ideas. Our series of company, industry and country profiles complements our premium products, providing top-level information on 10,000 companies, 2,500 industries and 50 countries. While they do not contain the highly detailed breakdowns found in premium reports, profiles give you the most important qualitative and quantitative summary information you need - including predictions and forecasts.
All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, Datamonitor plc. The facts of this profile are believed to be correct at the time of publication but cannot be guaranteed. Please note that the findings, conclusions and recommendations that Datamonitor delivers will be based on information gathered in good faith from both primary and secondary sources, whose accuracy we are not always in a position to guarantee. As such Datamonitor can accept no liability whatever for actions taken based on any information that may subsequently prove to be incorrect.
eBay Inc. © Datamonitor
Page 2
eBay Inc.
TABLE OF CONTENTS
TABLE OF CONTENTS
Company Overview..............................................................................................4 Key Facts...............................................................................................................4 SWOT Analysis.....................................................................................................5
eBay Inc. © Datamonitor
Page 3
eBay Inc.
Company Overview
COMPANY OVERVIEW
eBay is an online company that provides online marketplaces for the sale of goods and services. It also provides platforms, online payments services and online communications offerings to individuals and businesses. The company is headquartered in San Jose, California and employs around 15,500 people. The company recorded revenues of $7,672.3 million in the fiscal year ended December 2007, an increase of 28.5% over 2006. The operating profit of the company was $613.2 million in the fiscal year 2007, a decrease of 56.9% over 2006. The net profit was $348.3 million in the fiscal year 2007, a decrease of 69.1% over 2006.
KEY FACTS
Head Office eBay Inc. eBay 2145 Hamilton Avenue San Jose California 95125 USA 1 408 376 7400 1 408 369 4855 http://www.ebay.com
Phone Fax Web Address
Revenue / turnover 7,672.3 (USD Mn) Financial Year End Employees NASDAQ Ticker December 15,500 EBAY
eBay Inc. © Datamonitor
Page 4
eBay Inc.
SWOT Analysis
SWOT ANALYSIS
eBay is an online company which provides online marketplaces for the sale of goods and services and other online commerce. It also provides platforms, online payments services and online communications offerings to individuals and businesses. eBay has a strong market position. Strong market position provides competitive advantage and better visibility to the company. However, hacking or unauthorized access to computers has resulted in losses to companies and their customers. eBay’s major business operations are web-based. Such instances of attacks make the company vulnerable, and also erode customer confidence. This could have an adverse effect on its credit card sales as consumers would hesitate to provide their personal information. Strengths Strong market position Business model Strong revenue growth Opportunities Growing search engine advertising Growth in online retail spending Acquisitions Weaknesses Declining operating margin Litigations
Threats Intense competition Hacking and spoofing Rising labor wages
Strengths
Strong market position eBay has a strong market position. It is one of the largest global online auction website, with operations in 28 countries. The company was ranked 383rd in the list of America’s largest corporations in 2007 by Fortune magazine. In brand value rankings, the company was ranked 43rd with a brand value of $12,927 million in 2007. eBay has 222 million registered users. As of 2007, the number of active users on various eBay.com platforms was approximately 83 million as compared to approximately 82 million at the end of 2006. At any given time, there are approximately 100 million listings on eBay worldwide, and approximately 6.6 million listings are added per day. A strong customer base, and associated strong market position, provides a competitive advantage and gives eBay considerable bargaining power. Business model
eBay Inc. © Datamonitor
Page 5
eBay Inc.
SWOT Analysis
eBay operates on a unique business model which unites buyers and sellers in an online marketplace. This business model overcomes the inefficiencies of traditional marketplaces, which tend to be fragmented and offer a relatively limited variety of goods. This business model also saves on the transaction costs per sale, due to absence of intermediaries. In particular, this model has been successful in addressing markets of new and scarce goods, end-of-life products, and used and vintage items, which would otherwise be difficult to locate and purchase. The simplicity and flexibility of this model has enabled eBay to increase the number of members and hence increase its revenue base. Strong revenue growth The company's revenues have shown a significant increase in the last few years. During 2005-2007, the company's total revenues increased at a CAGR of 13%, from $5,969.7 million in fiscal 2005 to $7,672.3 million in fiscal 2007. This increase was due to the strong performance across all reportable segments. Strong revenue growth would help the company in maintaining its leading position in the market.
Weaknesses
Declining operating margin The company’s operating margins declined, largely due to increasing operating cost pressures. For instance, eBay's sales and marketing, product development, general and administrative expenses increased to $5,296.2 million in the fiscal year 2007 compared to $3,290 million in the fiscal year 2006. Expenses as a percent of net sales increased to 69% in the fiscal year 2007 compared with 55.1% in the fiscal year 2006 and 50.4% in the fiscal year 2005. The rising expenditure has impacted the company's margins which resulted in its operating margin declining from 31.7% in 2005, to 23.8% in 2006 and 8% in 2007. A declining operating margin indicates a weak cost structure and could adversely affect the company's long term financial position. Litigations eBay has been involved in various litigations in the past years. In February 2007, StubHub, a subsidiary, was sued for violating the Fair and Accurate Credit Transaction Act because it, allegedly, printed receipts containing more than the last five digits of a credit card number or the expiration date of a credit card by showing the same on an on-screen receipt. In March 2007, a case was filed against eBay and PayPal, another subsidiary, for monopolizing markets through various anticompetitive acts and tying arrangements. In May 2007, Netcraft filed a lawsuit against eBay alleging that eBay and PayPal infringed two of its patents entitled ‘Internet billing methods.’ Flexiworld Technologies filed a lawsuit against eBay
eBay Inc. © Datamonitor
Page 6
eBay Inc.
SWOT Analysis
alleging that Skype infringed its patent titled ‘Apparatus, Methods, and Systems for Anonymous Communication’ in October 2007. In December 2007, Klausner Technologies filed a lawsuit alleging that eBay, Apple, AT&T, AT&T Mobility, Comcast, CSC Holdings, GotVoice and Simulscribe infringed Klausner’s patent titled ‘Telephone Answering Service Linking Displayed Data with Recorded Audio Message.’ These litigations could have a material effect on the company’s profits, investors’ confidence and could also result in negative publicity for the company.
Opportunities
Growing search engine advertising Search engine marketing is currently the largest segment within online advertising, total online accounting for approximately $7.2 billion in 2006. Search engine advertising is expected to grow at a CAGR of 15% from 2006 to reach $13.1 billion in 2010. By 2010, search is likely to account for 47% of online advertising budgets, up from 42% in 2005. Increasing online advertising spending will enable eBay to increase its revenues and to improve profitability. Growth in online retail spending Online shopping is steadily growing in popularity in the US. During the second quarter of 2005, e-commerce sales grew 26% as compared with the same period of the previous year. The US online retail sales have been estimated to have grown from $104 billion in 2005 to $130 billion in 2006. The US online retail sales are expected to grow annually by 17% in 2007-2008. The online retail sales in the US are expected to reach $329 billion in 2010. eBay facilitates online shopping through its websites such as eBay.com, Half.com, Rent.com, Shopping.com, Kijiji, Gumtree.com, LoQUo.com, OpusForum, Marktplaats.nl, mobile.de and StubHub. The company could further improve its online services by expanding its offerings and gain from the expected growth in online sales. Acquisitions eBay made many acquisitions in the recent years. In February 2007, eBay acquired StubHub. eBay acquired a minority stake in GittiGidiyor.com, a leading online marketplace in Turkey in May 2007. eBay acquired StumbleUpon, an early-stage company that helps people discover and share content online, for an aggregate transaction value of approximately $75 million in May 2007. eBay acquired ViA-Online, a leading auction management software company in Germany that operates Afterbuy.com to enable professional trading on eBay.de and other online marketplaces in October 2007. Expansion of operations by acquisitions would increase the company’s visibility and market penetration. This in turn would increase eBay’s market share and boost its revenues.
Threats
eBay Inc. © Datamonitor
Page 7
eBay Inc.
SWOT Analysis
Intense competition Although eBay is the dominant player in online auctions, the company still competes with other ecommerce companies, primarily Amazon, for business. In addition, there are a number of niche businesses that directly compete with the company such as Autobytel (new and used cars). In addition, Overstock.com has recently launched an online auction business. Further, eBay has been slow to infiltrate the Hong Kong market, which was entered by Yahoo in 1999. Increased competition from established players such as Yahoo could erode eBay's market share and reduce its profitability. Hacking and spoofing Hacking or unauthorized access to computers all over the world has resulted in major losses to companies and their customers. It is believed that the top 50 attackers defaced approximately 2.5 million websites all over the globe. According to the Computer Security Institute and San Francisco Federal Bureau of Investigation’s Computer Crime and Security Survey, 2005, there was an exponential increase in website defacement. Over 140 million records of various companies have been compromised from February 2005 to January 2007, out of which approximately 80 million were due to hacking attacks. For instance, in January 2007, TJX suffered an unauthorized intrusion into its computer systems that process and store information related to customer transactions. About 94 million customers’ credit and debit card details were stolen. The company estimated its liability for the breach to be $118 million after tax charges in the second quarter of the fiscal year 2008. In addition, TJX expects to incur future non-cash charges of approximately $21 million (after tax). Also, in 2007, data of over 1.3 million users was stolen from US job website Monster.com. In 2008, Hannaford Bros. grocery stores in the New England suffered a theft of an estimated 4.2 million credit and debit card numbers. Also in 2008, data of more than 56,000 customers was stolen from Advance Auto parts. eBay’s major business operations are web-based. Such instances of attacks make the company highly vulnerable and also have a bearing on the customers’ confidence. This could have an adverse effect on eBay’s credit card sales as consumers would hesitate to provide their personal information. Rising labor wages Labor wages are rising in the US. In recent times, tight labor markets, increased overtime, government mandated increases in minimum wages and a higher proportion of full-time employees are resulting in an increase in labor costs, which could materially impact the company's results of operation. The federal minimum wage rate in the US, which had remained at $5.15 per hour since 1997, has increased to $5.85 per hour from July 2007. The federal minimum wage rate is further expected to rise to $6.55 an hour in July 2008 and then to $7.25 an hour effective July 2009. eBay employs approximately 15,500 employees across the company as of December 2007. Out of this, 9,500 employees are located in the US. The company's success depends on its ability to attract and retain
eBay Inc. © Datamonitor
Page 8
eBay Inc.
SWOT Analysis
efficient employees in all segments of its business. Increased labor costs in the US could increase overall costs, resulting in a decline in its profitability.
eBay Inc. © Datamonitor
Page 9
Company Profile
Publication Date: 21 Apr 2008
www.datamonitor.com
Datamonitor USA 245 5th Avenue 4th Floor New York, NY 10016 USA t:+1 212 686 7400 f:+1 212 686 2626 e:[email protected] Datamonitor Europe Charles House 108-110 Finchley Road London NW3 5JJ United Kingdom t:+44 20 7675 7000 f:+44 20 7675 7500 e:[email protected] Datamonitor Germany Kastor & Pollux Platz der Einheit 1 60327 Frankfurt Deutschland t:+49 69 9754 4517 f:+49 69 9754 4900 e:[email protected] Datamonitor Hong Kong 2802-2803 Admiralty Centre Tower 1 18 Harcourt Road Hong Kong t:+852 2520 1177 f:+852 2520 1165 e:[email protected]
eBay Inc.
ABOUT DATAMONITOR
Datamonitor is a leading business information company specializing in industry analysis. Through its proprietary databases and wealth of expertise, Datamonitor provides clients with unbiased expert analysis and in depth forecasts for six industry sectors: Healthcare, Technology, Automotive, Energy, Consumer Markets, and Financial Services. The company also advises clients on the impact that new technology and eCommerce will have on their businesses. Datamonitor maintains its headquarters in London, and regional offices in New York, Frankfurt, and Hong Kong. The company serves the world's largest 5000 companies. Datamonitor's premium reports are based on primary research with industry panels and consumers. We gather information on market segmentation, market growth and pricing, competitors and products. Our experts then interpret this data to produce detailed forecasts and actionable recommendations, helping you create new business opportunities and ideas. Our series of company, industry and country profiles complements our premium products, providing top-level information on 10,000 companies, 2,500 industries and 50 countries. While they do not contain the highly detailed breakdowns found in premium reports, profiles give you the most important qualitative and quantitative summary information you need - including predictions and forecasts.
All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, Datamonitor plc. The facts of this profile are believed to be correct at the time of publication but cannot be guaranteed. Please note that the findings, conclusions and recommendations that Datamonitor delivers will be based on information gathered in good faith from both primary and secondary sources, whose accuracy we are not always in a position to guarantee. As such Datamonitor can accept no liability whatever for actions taken based on any information that may subsequently prove to be incorrect.
eBay Inc. © Datamonitor
Page 2
eBay Inc.
TABLE OF CONTENTS
TABLE OF CONTENTS
Company Overview..............................................................................................4 Key Facts...............................................................................................................4 SWOT Analysis.....................................................................................................5
eBay Inc. © Datamonitor
Page 3
eBay Inc.
Company Overview
COMPANY OVERVIEW
eBay is an online company that provides online marketplaces for the sale of goods and services. It also provides platforms, online payments services and online communications offerings to individuals and businesses. The company is headquartered in San Jose, California and employs around 15,500 people. The company recorded revenues of $7,672.3 million in the fiscal year ended December 2007, an increase of 28.5% over 2006. The operating profit of the company was $613.2 million in the fiscal year 2007, a decrease of 56.9% over 2006. The net profit was $348.3 million in the fiscal year 2007, a decrease of 69.1% over 2006.
KEY FACTS
Head Office eBay Inc. eBay 2145 Hamilton Avenue San Jose California 95125 USA 1 408 376 7400 1 408 369 4855 http://www.ebay.com
Phone Fax Web Address
Revenue / turnover 7,672.3 (USD Mn) Financial Year End Employees NASDAQ Ticker December 15,500 EBAY
eBay Inc. © Datamonitor
Page 4
eBay Inc.
SWOT Analysis
SWOT ANALYSIS
eBay is an online company which provides online marketplaces for the sale of goods and services and other online commerce. It also provides platforms, online payments services and online communications offerings to individuals and businesses. eBay has a strong market position. Strong market position provides competitive advantage and better visibility to the company. However, hacking or unauthorized access to computers has resulted in losses to companies and their customers. eBay’s major business operations are web-based. Such instances of attacks make the company vulnerable, and also erode customer confidence. This could have an adverse effect on its credit card sales as consumers would hesitate to provide their personal information. Strengths Strong market position Business model Strong revenue growth Opportunities Growing search engine advertising Growth in online retail spending Acquisitions Weaknesses Declining operating margin Litigations
Threats Intense competition Hacking and spoofing Rising labor wages
Strengths
Strong market position eBay has a strong market position. It is one of the largest global online auction website, with operations in 28 countries. The company was ranked 383rd in the list of America’s largest corporations in 2007 by Fortune magazine. In brand value rankings, the company was ranked 43rd with a brand value of $12,927 million in 2007. eBay has 222 million registered users. As of 2007, the number of active users on various eBay.com platforms was approximately 83 million as compared to approximately 82 million at the end of 2006. At any given time, there are approximately 100 million listings on eBay worldwide, and approximately 6.6 million listings are added per day. A strong customer base, and associated strong market position, provides a competitive advantage and gives eBay considerable bargaining power. Business model
eBay Inc. © Datamonitor
Page 5
eBay Inc.
SWOT Analysis
eBay operates on a unique business model which unites buyers and sellers in an online marketplace. This business model overcomes the inefficiencies of traditional marketplaces, which tend to be fragmented and offer a relatively limited variety of goods. This business model also saves on the transaction costs per sale, due to absence of intermediaries. In particular, this model has been successful in addressing markets of new and scarce goods, end-of-life products, and used and vintage items, which would otherwise be difficult to locate and purchase. The simplicity and flexibility of this model has enabled eBay to increase the number of members and hence increase its revenue base. Strong revenue growth The company's revenues have shown a significant increase in the last few years. During 2005-2007, the company's total revenues increased at a CAGR of 13%, from $5,969.7 million in fiscal 2005 to $7,672.3 million in fiscal 2007. This increase was due to the strong performance across all reportable segments. Strong revenue growth would help the company in maintaining its leading position in the market.
Weaknesses
Declining operating margin The company’s operating margins declined, largely due to increasing operating cost pressures. For instance, eBay's sales and marketing, product development, general and administrative expenses increased to $5,296.2 million in the fiscal year 2007 compared to $3,290 million in the fiscal year 2006. Expenses as a percent of net sales increased to 69% in the fiscal year 2007 compared with 55.1% in the fiscal year 2006 and 50.4% in the fiscal year 2005. The rising expenditure has impacted the company's margins which resulted in its operating margin declining from 31.7% in 2005, to 23.8% in 2006 and 8% in 2007. A declining operating margin indicates a weak cost structure and could adversely affect the company's long term financial position. Litigations eBay has been involved in various litigations in the past years. In February 2007, StubHub, a subsidiary, was sued for violating the Fair and Accurate Credit Transaction Act because it, allegedly, printed receipts containing more than the last five digits of a credit card number or the expiration date of a credit card by showing the same on an on-screen receipt. In March 2007, a case was filed against eBay and PayPal, another subsidiary, for monopolizing markets through various anticompetitive acts and tying arrangements. In May 2007, Netcraft filed a lawsuit against eBay alleging that eBay and PayPal infringed two of its patents entitled ‘Internet billing methods.’ Flexiworld Technologies filed a lawsuit against eBay
eBay Inc. © Datamonitor
Page 6
eBay Inc.
SWOT Analysis
alleging that Skype infringed its patent titled ‘Apparatus, Methods, and Systems for Anonymous Communication’ in October 2007. In December 2007, Klausner Technologies filed a lawsuit alleging that eBay, Apple, AT&T, AT&T Mobility, Comcast, CSC Holdings, GotVoice and Simulscribe infringed Klausner’s patent titled ‘Telephone Answering Service Linking Displayed Data with Recorded Audio Message.’ These litigations could have a material effect on the company’s profits, investors’ confidence and could also result in negative publicity for the company.
Opportunities
Growing search engine advertising Search engine marketing is currently the largest segment within online advertising, total online accounting for approximately $7.2 billion in 2006. Search engine advertising is expected to grow at a CAGR of 15% from 2006 to reach $13.1 billion in 2010. By 2010, search is likely to account for 47% of online advertising budgets, up from 42% in 2005. Increasing online advertising spending will enable eBay to increase its revenues and to improve profitability. Growth in online retail spending Online shopping is steadily growing in popularity in the US. During the second quarter of 2005, e-commerce sales grew 26% as compared with the same period of the previous year. The US online retail sales have been estimated to have grown from $104 billion in 2005 to $130 billion in 2006. The US online retail sales are expected to grow annually by 17% in 2007-2008. The online retail sales in the US are expected to reach $329 billion in 2010. eBay facilitates online shopping through its websites such as eBay.com, Half.com, Rent.com, Shopping.com, Kijiji, Gumtree.com, LoQUo.com, OpusForum, Marktplaats.nl, mobile.de and StubHub. The company could further improve its online services by expanding its offerings and gain from the expected growth in online sales. Acquisitions eBay made many acquisitions in the recent years. In February 2007, eBay acquired StubHub. eBay acquired a minority stake in GittiGidiyor.com, a leading online marketplace in Turkey in May 2007. eBay acquired StumbleUpon, an early-stage company that helps people discover and share content online, for an aggregate transaction value of approximately $75 million in May 2007. eBay acquired ViA-Online, a leading auction management software company in Germany that operates Afterbuy.com to enable professional trading on eBay.de and other online marketplaces in October 2007. Expansion of operations by acquisitions would increase the company’s visibility and market penetration. This in turn would increase eBay’s market share and boost its revenues.
Threats
eBay Inc. © Datamonitor
Page 7
eBay Inc.
SWOT Analysis
Intense competition Although eBay is the dominant player in online auctions, the company still competes with other ecommerce companies, primarily Amazon, for business. In addition, there are a number of niche businesses that directly compete with the company such as Autobytel (new and used cars). In addition, Overstock.com has recently launched an online auction business. Further, eBay has been slow to infiltrate the Hong Kong market, which was entered by Yahoo in 1999. Increased competition from established players such as Yahoo could erode eBay's market share and reduce its profitability. Hacking and spoofing Hacking or unauthorized access to computers all over the world has resulted in major losses to companies and their customers. It is believed that the top 50 attackers defaced approximately 2.5 million websites all over the globe. According to the Computer Security Institute and San Francisco Federal Bureau of Investigation’s Computer Crime and Security Survey, 2005, there was an exponential increase in website defacement. Over 140 million records of various companies have been compromised from February 2005 to January 2007, out of which approximately 80 million were due to hacking attacks. For instance, in January 2007, TJX suffered an unauthorized intrusion into its computer systems that process and store information related to customer transactions. About 94 million customers’ credit and debit card details were stolen. The company estimated its liability for the breach to be $118 million after tax charges in the second quarter of the fiscal year 2008. In addition, TJX expects to incur future non-cash charges of approximately $21 million (after tax). Also, in 2007, data of over 1.3 million users was stolen from US job website Monster.com. In 2008, Hannaford Bros. grocery stores in the New England suffered a theft of an estimated 4.2 million credit and debit card numbers. Also in 2008, data of more than 56,000 customers was stolen from Advance Auto parts. eBay’s major business operations are web-based. Such instances of attacks make the company highly vulnerable and also have a bearing on the customers’ confidence. This could have an adverse effect on eBay’s credit card sales as consumers would hesitate to provide their personal information. Rising labor wages Labor wages are rising in the US. In recent times, tight labor markets, increased overtime, government mandated increases in minimum wages and a higher proportion of full-time employees are resulting in an increase in labor costs, which could materially impact the company's results of operation. The federal minimum wage rate in the US, which had remained at $5.15 per hour since 1997, has increased to $5.85 per hour from July 2007. The federal minimum wage rate is further expected to rise to $6.55 an hour in July 2008 and then to $7.25 an hour effective July 2009. eBay employs approximately 15,500 employees across the company as of December 2007. Out of this, 9,500 employees are located in the US. The company's success depends on its ability to attract and retain
eBay Inc. © Datamonitor
Page 8
eBay Inc.
SWOT Analysis
efficient employees in all segments of its business. Increased labor costs in the US could increase overall costs, resulting in a decline in its profitability.
eBay Inc. © Datamonitor
Page 9
