Must-know: Why eBay’s operating margins continue to decline

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eBay’s operating margins declined by 3% in the last quarter

eBay Inc’s (EBAY) operating margins continue to decline. As the chart below shows, eBay’s non-GAAP (generally accepted accounting principles) operating margins declined from 26.8% in 3Q13 to 23.7% in 3Q14.

The company cited a number of reasons for the continued decline. Earlier in this series, we noted the major cyberattack eBay experienced in May of this year. Because of the attack, eBay had to force its users to change their passwords, which cost the company traffic. eBay also experienced lower traffic on its site because of a change to search engine optimization, or SEO, made by Google Inc (GOOG)(GOOGL).

eBay operating margin_Q3

A number of issues why operating margins continue to decline

Due to the above-mentioned issues, eBay had to step up targeted marketing efforts to re-engage users. The company also had to increase customer service to address customers’ pain points. Increased marketing contributed to the decline in the company’s operating margins in the last quarter.

StubHub also continued to suffer from lower take rates, which contributed to the company’s lower margins in the third quarter. Market Realist discussed why StubHub’s second-quarter take rate declined in its article,  Why eBay expects low revenue and margin growth for StubHub.

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Another reason why eBay’s margins declined was eBay’s Enterprise segment’s performance. eBay’s management noted that eBay Enterprise margins fell by 3.9% during the last quarter compared to a year ago. The increased cost to prepare for the holiday season was blamed for the decline. Learn more about this segment by reading Why eBay Enterprise wants Hayman to drive its revenue growth.

Incidentally, eBay isn’t the only e-commerce company to report declining margins of late. Amazon.com, Inc. (AMZN) also reported a decline in operating margins in the third quarter. To learn more, read Market Realist’s article,  Why Amazon could announce an operating loss in the 3rd quarter. We saw a similar pattern with Alibaba Group Holding Ltd, (BABA). Its operating margins declined from ~50% in 2Q13 to ~43% in 2Q14.

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