eBay on Wednesday announced plans to revise its struggling marketplace unit, giving it greater focus on its core used goods auction business, rather than its retail business, the company said during its analyst day presentation.
The news apparently pleased Wall Street, which bid up eBay shares 4.7 percent Wednesday, as the company held its analyst day. eBay shares continued to rise Thursday, climbing 2.24 percent to $11.89 a share in morning trading.
With its announcement, eBay addresses one of Wall Street's long-held complaints that the e-commerce giant suffers from an identity crisis. Analysts have previously said that the company has struggled with a desire to stay true to its roots in offering used goods and collectibles through an auction process, yet has also wanted to compete in the fixed-price retail arena with the likes of Amazon.com and other online retailers.
In a research note Thursday, Ben Schachter of UBS Securities said:
Management acknowledged that its Marketplaces division had fallen behind in its technological aptitude and its ability to satisfy customers. The company emphasized its plan for the division to refocus on the secondary market and develop an improved user experience for the customer.
Schachter, meanwhile, remains skeptical of eBay's forecast that it can grow its marketplace division at the same pace as the e-commerce market next year and outpace the market in 2011.
The UBS analyst added:
The company is attempting to improve its user experience by expanding efforts to include more liquidation/out-of-season products and by overhauling its search function to bring more relevant searches to the forefront.
Imran Khan, a J.P. Morgan analyst, agrees that eBay's marketplace division is a wait-and-see story.
Khan noted in his analyst report Thursday that he believes the division will continue to underperform in the e-commerce market, due to several issues:
(1) low pricing strategy by Amazon, Wal-Mart and other e-commerce sites; (2) continued expansion of selection by niche e-commerce sites and (3) the continued entrance of brick-and-mortar retailers into the e-commerce space.
Cowen & Co. analyst Jim Friedland noted in his research note that competition from not only Amazon but also Google Search is a "serious threat" to eBay's marketplace business.
Amazon and Google allow sellers to post their goods to their respective sites at a cheaper cost, noted Friedland. Sellers, for example, can upload their goods to Google's product search database for free.
He further noted:
We believe the superior buying experience on Amazon and search experience on Google reduces the value of the eBay platform for buyers and sellers. Even though eBay is dedicating significant resources to enhancing search, improving the user interface and other buyer/seller features, we believe it will be difficult for the company to catch up to Amazon.
eBay also told analysts Wednesday that it plans to double the size of its PayPal business over the next three years to approximately $100 billion to $120 billion in annual payments.