Focusing on user experience could lead to improving stock performance for eBay Inc. (EBAY, Financial). The company is seeking to boost sales conversions through reducing friction across its platform. An evolving marketing campaign which allows sellers to promote their items could also provide an additional growing revenue stream.
The e-commerce company's decision to intermediate payments may reduce costs for sellers and provide it with greater control. Additional services like installation and assembly have the potential to differentiate its offering versus industry peers.
Having declined 21% in the last year versus a 5% rise for the S&P 500, the stock could offer investment appeal.
Strategy shift
EBay’s focus on improving the user experience could boost its financial performance. Guaranteed delivery has proven to be popular among users, accounting for 9% of U.S. volume in the most recent quarter. The service was recently launched in Australia, with the potential for it to be rolled out in other territories in the future. A simplification of the registration and checkout process is set to reduce friction across its platform. For example, unregistered users can add items to a watchlist or save searches. Sales conversions may also benefit from a simplification of the selling process, with a new consumer listing flow set to make it faster for new products to be added to the site.
Revenue is being catalyzed by the company’s expanded promoted listings placements. They have proven popular among users, with over 400,000 sellers promoting in excess of 160 million listings. This has driven revenue from the segment 120% higher in the last quarter, with an aggressive growth strategy ahead for the service. Over the next several years, the service could contribute up to $1 billion in annual revenue. In addition, the company’s continued focus on eBay as a mainstream commerce destination could make its marketing spend more efficient and effective in its goal of attracting new users.
New opportunities
Partnerships with service providers Handy and Porch could provide an additional revenue stream for the business. Users will be able to easily book services, including assembly or installation of products bought on the platform. This may help to further differentiate the business from rivals while also allowing it to keep up with Amazon (AMZN, Financial), who is gradually diversifying its offerings. With consumers continuing to value convenience to a greater extent, the after-purchase service segment could be a relatively low-risk growth area for the business. Its partnerships with established providers means service levels are likely to be relatively high.
The company’s decision to intermediate payments could lower costs and offer greater control. It is set to reduce costs for payment processing as well as offer a simplified selling process that could boost conversion rates among buyers. It may also attract more sellers to the company’s platform since a simpler interface is being rolled out as eBay gradually transitions away from its deal with PayPal (PYPL, Financial).
Changing business
The company’s focus on evolving its platform in order to increase its appeal to new users may not be welcomed by existing merchants. Some of them have been slow to adapt to the changes being made, with the company investing in areas such as buyer incentives and in a refreshed brand that aims to project eBay as an increasingly mainstream shopping destination. The investments made to evolve the business, as well as the impact of a stronger dollar on its U.S. export business, ultimately led to a two-percentage point reduction in its marketplace volume growth in the most recent quarter.
In response to dissatisfied existing users, the company will seek to target its marketing toward new users. It will also slow the pace of change for existing users. This could lead to a lower rate of growth in the short run, but may contribute to operating margin expansion as its investments in areas such as payments ramp up. The introduction of additional user-focused programs such as a partnership with Square (SQ, Financial) to provide merchants with access to small business loans may also help to offset the challenges faced as it seeks to deliver an evolving offering.
Outlook
With the company offering an improved user experience, sales conversions may increase as its platform benefits from reduced friction. Marketing opportunities for merchants offer a new revenue stream, while an evolving brand message could appeal to new users.
Although the pace of change may have caused a degree of dissatisfaction among existing users, its marketing campaign is now being targeted at new users. Additional services such as installation and assembly may help to differentiate the company from rivals, while greater control over payment options could reduce costs and improve flexibility for sellers. Having underperformed the S&P 500 in the last year, eBay appears to have investment appeal.
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