The latest internet earnings season has got off to a decidedly unappetising start.
eBay kicked it off today with two memorable firsts: the first-ever fall in the value of goods sold through its sites (which slipped by 1 per cent in the latest quarter) and a fourth-quarter financial forecast that predicts its first-ever revenue decline (yes, decline – and this is a company that was growing at 30 per cent this time last year.)
The clear message from eBay executives on their earnings call today: as far as ecommerce is concerned, Christmas just got cancelled (fourth quarter revenues are forecast to come in virtually unchanged from the third quarter.)
Wall Street, needless to say, has decided that noone will be immune. Amazon’s shares are off 17 per cent, in line with eBay’s 18 per cent loss.
This knee-jerk reaction looks overdone. eBay’s core business, to be sure, is in trouble. A new leadership team under John Donahoe has only just rolled up its sleeves to try to fix long-standing problems. Essentially, buyers have discovered that they can find deals that are just as good elsewhere around the Web these days, and in environments that are easier to use and offer greater certainty and security than eBay’s (whether that means going direct to Amazon.com, whose market share has been rising, or by clicking on Google’s text-based ads.) Sellers have caught on and have been following the buyers.
So to what extent are eBay’s problems company-specific, to what extent are they the result of the broader economy? When I got to put that question to Mr Donahoe just now, he was adamant that activity in eBay’s markets was only falling in line with the broader online economy. He also repeated a familiar claim: that in difficult economic conditions, buyers and sellers are more likely to turn to eBay in pursuit of a bargain, or to raise needed cash.
We’ll see. Amazon, which reports earnings next Wednesday, is expected to show revenue growth of 30 per cent for the third quarter. True, the companies are not directly comparable (for instance, a fifth of eBay’s sales by value come from the slumping automobile market.) But when the history of this internet downturn is written, the chances are that it will look like the last one: the companies with the most resilient business models will come out stronger, and with a larger market share.
