eBay CEO warns of challenges ahead as profits dip 8%

Payments revenue up by 20%

Rising costs and a one-off gain last year mean eBay’s profits are down 8% year on year to USD640m in the second quarter, coming in slightly short of analyst expectations. CEO John Donahoe claims the company had a “strong” quarter with performance in its core marketplaces and online payments service PayPal divisions driving revenue up 14% to USD3.9bn. Mobile is playing an increasingly important role in the firm’s commerce division, adding 3m new customers in the period and reporting a 90% increase in growth year on year.

However, he is managing expectations for the rest of the year, warning that key markets in Europe and Korea will continue to be a challenge. 

“We had a strong quarter, with UD51bn of enabled commerce volume,” says Donahoe. “Macroeconomic headwinds in Europe and Korea will continue to be a challenge in the second half of the year. But our core businesses are strong and we continue to attract millions of new customers each quarter through mobile innovation.”


PayPal continues to be a significant revenue driver for eBay, with the firm reporting 4.7m new users during the last 12 months, pushing the online payment service’s total user base up 17% to 132m. The firm says revenue from the division increased by a fifth year on year to USD1.6bn and that the total volume of payments handled by the service is up by nearly a quarter to USD43bn.

Nonetheless, PayPal’s remarkable growth is showing signs of slowing in recent quarters, as the firm faces increasing competition from rivals such as Square in its home market. eBay says it is “making strides” with its own mobile payment service, PayPal Here, but does not break out user figures or payment volume. eBay has said previously that it aims to double PayPal’s active user base by 2015 and that it hopes to be handling USD300bn in sales by then, compared to USD175m last year.

“It’s not a quarter in which they absolutely crushed it,” says JMP Securities analyst Ron Josey. “They are doing well, but people were hoping for more.”

The firm is spending more on sales and marketing, with expenses up from USD717m to USD771m during the year, pushing up operating costs to nearly USD2bn. 

Mobile boosts marketplaces 

Mobile is playing an increasingly important role in eBay’s business, as consumers become more confident spending on smartphones ad tablets. The company’s core marketplaces division saw revenues climb 10% year on year to USD2bn. The firm added 3.5m new customers during the period, bringing its total user base up to 120m – a 14% climb year on year. Increased traffic from mobile boosted the volume of transactions handled in the segment 13% to USD18.3bn excluding car sales, according to the company. eBay has been moving to boost the performance of its core marketplace business with improved search function and higher commission from merchants as it seeks to close the gap on Amazon, as well as a growing raft of copy-cat and niche online marketplaces that are gaining traction online.

The firm’s enterprise unit, formerly called GSI Commerce, which helps manage other brands’ websites, saw revenues climb 11% to USD246m in the second quarter. 

“This puts a lot of pressure on eBay’s fourth quarter which has to be good for the company to meet its full-year forecasts,” says Josey. 

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