eBay’s (EBAY) core business is grinding to a halt. The compay reported modest Q2 upside, but revenue and Gross Merchandise Sales in the company’s marketplace business continues to decelerate an an alarming rate. eBay needs to spin off Skype and PayPal and focus all its energies on revitalizing its core business–and soon, before it’s too late.
AmTech analyst Tim Boyd cut EBAY from Hold to Sell and lowered its target price from $35 to $20. Boyd cites 3 key reasons for the downgrade: a weak consumer, lower GMV growth and declining market share, and eBay’s determination to change the “form and function” of its website:
In our view, eBay ‘ s growth prospects face a “triple whammy” for the foreseeable future: As 8% Y/Y GMV growth makes abundantly clear, eBay is hemorrhaging market share to competitors such as Amazon; The balance sheets of consumers in the U.S. and Europe continue to deteriorate; Against the backdrop of whammies #1 and #2, eBay is attempting to materially alter the form, function and functionality of its core marketplace.
Why GMV growth faltered:
2Q08 GMV growth was only 8% Y/Y, 400 bps lower than last quarter: There were two key reasons why eBay ‘ s GMV growth was so horrid: 1) deteriorating consumer spending patterns reduced conversion rates and ASPs; 2) growth in the ultra-high ASP Motors category fell off a cliff. The perpetual deceleration in eBay ‘ s GMV growth makes us wonder if a 0% quarter or even a negative growth quarter is far off. Given the fact that eBay is pushing through major changes in the midst of a difficult time for U.S. and European consumers, we think the risk/reward favours betting that it will happen.