Why the decline in GMV in the first half of 2014?
Since 4Q14, eBay’s (EBAY) gross merchandise volume (or GMV) has declined by 0.07% globally and 0.11% in the US market, the company’s largest and most competitive market. Volume in the first five months of 2014 was roughly stable, but a series of factors contributed to the decline in second half of the year.
In eBay’s earnings call, management noted three important challenges that led to the decline in GMV. Let’s take a look at each of those challenges.
Traffic growth decelerated by 7% in 2014 due to the decline in new buyers. New buyers declined due to the SEO (search engine optimization) changes that Google Inc (GOOG)(GOOGL) made in May 2014 and due to occasional buyers not returning to the site or buying less frequently. The cyberattack on eBay further decelerated traffic on the website.
Decline in FX-neutral selling prices
Over the year, the FX-neutral selling prices on eBay declined by 4%. Selection from lower-priced regions has increased as more sellers from around the world can now surface their inventory to global buyers. In addition, mobile has become a greater percentage of the company’s mix, which has more penetration in emerging markets and a younger demographic that tends to buy lower-priced items.
A stronger dollar
A stronger US dollar in the large cross-border trade business slowed cross-border flows. This resulted in a deceleration to 5% in the three-month active buyer growth. This is well below eBay’s 12-month active buyer growth of 11%.
What’s management doing to improve GMV?
Most likely, things will get little worse in the first half of 2015 before they get better in the second half of the year. eBay’s management said the company is taking decisive actions to improve both traffic and technology by increasing its investments.
eBay is investing in marketing, improving product design, and strengthening SEO workflow to a more sustainable format. The company is prioritizing its resources toward its core shoppers and doubling down on areas of strength such as its $2 billion eBay Deals business.
For a portfolio exposure to eBay, investors can consider an ETF such as the Dow Jones Internet Index Fund (FDN). eBay makes up 5.3% of the FDN portfolio. For a diversified exposure to eBay, investors can consider the SPDR S&P 500 (SPY). This ETF invests in the 500 largest US companies. The technology sector makes up 18% of the SPY portfolio.
Significant events in 2014 disrupted the ecosystem of eBay Marketplaces and stood as a hurdle in the progress the company had anticipated for 2014.
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