Yes, the earnings were in, but it was the news that eBay would intermediate payments – and displace PayPal – that dominated the headlines Wednesday.
As reported, the eCommerce giant has made moves to bring payments between buyers and sellers into its own orbit, and has struck a deal to bring Adyen on board as payments processor.
That would end the decade-and-a-half relationship with former subsidiary PayPal, which –according to Wednesday’s announcement – will now last through the middle of 2020. A term sheet will keep PayPal as a payment option within eBay’s offerings through the middle of 2023.
PayPal shares were down 12 percent in after-hours trading.
The move is a larger one that would, according to eBay, lower costs along the online marketplace by offering more options at checkout for consumers of eBay’s marketplace. And in the meantime, the company itself gets a bit more data from sellers – though just what, where, when and how are a bit opaque at the moment.
Before news of the intermediation decision, the company reported net income of 59 cents a share, which met estimates. The top line was also in line with the Street at $2.6 billion, which was up 8.8 percent from last year.
Transaction revenues across the overall eBay marketplace were up 8 percent to $1.7 trillion. Within segments, StubHub saw 12 percent growth to $306 million, even against a lackluster ticketing environment that may not see much alleviation in 2018.
Devin Wenig, the company’s president and CEO, said that eBay had seen five sequential quarters of growth in the U.S. market.
Overall gross merchandise volume was up 10 percent to $24.4 billion. Management said on the call that FX neutral B2C GMV was up 6 percent year over year, and FX neutral C2C GMV was up 7 percent year on year.
Classifieds revenue was up 13 percent on FX neutral results to $244 million, according to management’s presentation.
Turning to other metrics, the company said there were 170 million active buyers in the quarter, a tally that was up 5 percent from a year ago.
Those may have been the headline numbers, but attention turned time and again to the reasoning and the roadmap that ties in to the intermediation strategy.
During the conference call with analysts, management quantified the impact of eBay’s move, which initially will take as much as three to five cents a share off non-GAAP earnings, but will in the long run, according to management, benefit both the top and operating lines.
Chief Financial Officer Scott Schenkel said the firm can see an incremental $2 billion in revenues and $500 million in operating income once those new processes stabilize.
eBay is in effect embracing a sea change in how buyers and sellers will interact and transact across its online marketplace – namely by letting shoppers complete their purchases within eBay itself.
Said Schenkel during the conference call with analysts: "In the new intermediation model, we will simplify our relationship with sellers and plan to charge them a single fee for our marketplace and payment services … while this isn't a completely new business for us, given that we already act as a payment intermediary on other eBay platforms, it is important to keep in mind that this is a complex effort and may face delays along the way.” Investments will accelerate into 2019, he said.
Thus: From eBay to payments ecosystems, with Adyen – where once (okay, currently) there was PayPal.
During the question and answer session, management was quick to state that the firm has not made the decision to become the merchant of record, with the CEO noting that decision, yet to be made, might change “depending on the geography in which we operate … vis-a-vis sellers we are pretty confident that we can lower the overall selling costs on eBay. We have not made decisions … to publicize our pricing to sellers, but what I want sellers to hear is that number one, we have their experience in mind. We want to give them flexibility, increased payout options … that was very much front and center in our minds.”
Later in the call he said, in describing the timeframe for the shift, “this will not be a slow roll customer by customer. Beyond a certain date over due course we will announce, you will not be able to be on eBay selling or buying without this intermediated relationship with us.”
The increments to be expected would be “small GMV this year,” said the CEO, with attendant outsized costs, more GMV next year with even more significant costs, and then in 2020 “or some date beyond that, we will move the entire base over to this new model.”
Looking into 2018, said the executive, growth in the overall business can accelerate, as there is a foundation of structured data that now has “tentacles into almost everything that we do. We have rolled out a significant number of new product experiences like guaranteed delivery, authentication and a product-based commerce experience” that should scale in 2018.
In an interview with Karen Webster, Scott Cutler, eBay’s senior vice president of the Americas, said that – beyond the mechanics of the shift to intermediation – the move was spurred by the company’s position as a leading global eCommerce player, which has given them an opportunity to look closely at the payments and customer experience.
“As we look at the future evolution of the eCommerce experience, we wanted an opportunity to deliver a more seamless, frictionless experience to customers … open, seamless and flexible will be the experience for our buyers,” the executive told Webster.
Sellers, Cutler said, can also expect to see lower costs tied to payments processing. eBay also said it is working on centralizing information, spanning transactions and customer information. This will help to expand the reach of those sellers into new geographies via localized payment options that buyers in those markets will want.
Additionally, Cutler pointed out that sellers will not need to change their accounts, and will log in and manage listings on a daily basis. But they will need to provide the eCommerce firm with additional, as yet unspecified, payments-related data.
The long-tailed nature of the project signals a step up in investment, tied partly to a goal of having “a team of several hundred business, product and risk specialists” in place. Cutler remarked that bolstering “risk and trust” is a key part of the operational model that must support the eBay marketplace.
Cutler also said the data available to eBay as the buyer/seller intermediary will fuel the development and launch of innovative services. Moving forward, the ability to directly collect funds from buyers and disburse them to sellers also means "they will be in a position to have better relationships with our customers."
Spearheading this effort is former PayPal executive, Alyssa Cutright, eBay's VP of payments, and Jingming Li, VP of payments platform. VP Yvette Bohanan will lead the payments risk management team.
Noting that the direct relationship with buyers and sellers is the hallmark of every other leading online marketplace globally, eBay will now be, as Cutler termed it, “at the standard of every other marketplace.”