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Why eBay could still make a comeback in the second half of 2014

Why eBay could still make a comeback in the second half of 2014 (Part 1 of 7)

Why did eBay’s operating margins decline in 2nd quarter 2014?

eBay’s operating margins are declining faster

eBay (EBAY) announced its 2Q14 earnings a few weeks back. Although the company’s revenue growth of 13% was in line with expectations, its operating margins declined at a faster rate than expected. As the below chart shows, eBay’s GAAP operating margins continue to decline this year, from 22.6% in 4Q13 to 18.2% in 2Q14.

Incidentally, eBay’s main competitor, Amazon’s (AMZN), operating margins are also declining this year. This shows that the e-Commerce market is getting more competitive. Google’s (GOOGL) increasing its presence in this market by expanding its Google Shopping Express service. Alibaba (ALBCF) recently launched a U.S. e-Commerce website.

eBay operating marginEnlarge Graph

eBay faced a number of challenges in the last quarter

To start with, eBay faced a major cyberattack in May this year. This cyberattack compromised the company’s database containing encrypted user passwords. eBay forced users to change their passwords, and about 80%–85% of users have reset their passwords.

Because of this cyberattack, eBay faced the problem of lower user activity on its site and had to step up targeted marketing efforts to re-engage these users and other users who have not yet reset their passwords. This increase in marketing efforts was one of the factors behind the decline in the company’s operating margins last quarter.

Due to the cyberattack, eBay saw its search ranking fall during the quarter, which exacerbated the problem. Plus, David Marcus, the president of eBay’s Paypal division, left eBay to join Facebook (FB) as the vice president of Facebook Messenger service. These issues created further headaches for eBay.

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