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EBay To Buyback Stock, Increase Fees

By: David Utter

During the quarterly financial webcast by eBay, CEO Meg Whitman disclosed that eBay has a lot of faith in its future - $2 billion worth of faith.

eBay To Buyback Stock, Increase FeesThe $2 billion represents how much of its stock eBay (EBAY) could repurchase over the next two years. The company's board of directors authorized the buyback of shares, which closed at 25.93 ahead of the earnings announcement.

Shares of eBay moved up to 27.43 in after hours trading according to ECN, as investors appeared to be encouraged by that news. Company revenue for the second quarter 2006 increased 30 percent year-over-year to $1.411 billion. But net income for the period dropped 14 percent to $250 million.

EBay also plans to increase fees for its stores. Bill Cobb, eBay North America president, said store inventory listings comprised about 83 percent of active eBay listings on average. Items listed in stores do not move as quickly as eBay's core listings of auctions, Buy It Now, and Fixed Price listings.

Cobb said eBay's costs for hosting store inventory exceed the insertion fees charged for placing them online. Correcting this imbalance means increasing that fee starting August 22nd, from 2 cents per listing to 5 and 10 cents per listing depending on its starting price.

The company also made a marketing effort to reduce the sting of the announcement, by announcing a two-day promotion. Auction and Fixed Price listings inserted and started on July 20 and 21 will only be charged a 20-cent insertion fee. That only applies to typical US and Canada eBay listings, and Parts & Accessories listings on eBay Motors.

Store owners probably will not be pleased with the changes made, since Cobb noted that the typical store will see an overall fee increase of less than six percent. EBay sellers have been as crafty as buyers in seeking the best deal they can from eBay, and how they react to the change may not be what eBay has anticipated.

A persistent way sellers have tried to maximize their take has been through charging excessive shipping costs. Back in June, Cobb cited the example of items with a 1-cent Buy It Now price and a $25 shipping charge. He said eBay would become much more proactive in tracking these down and aggressively enforcing policies against the practice.

While those items should be easy enough to find, it could leave open a grey area depending on what eBay considers excessive, and what buyers consider excessive. Cobb had said company research found the top reason buyers left eBay was excessive shipping charges.

The changes all focus on moving more sellers and more items to using eBay's core listings. We think Buy It Now listings should increase, as sellers who have been charging a fixed price in their stores will want to maintain their margins.

But the bargain hunters out there probably will continue to resist using those listings, which will be an all-around bad situation for eBay. If eBay really wants to encourage more buyer activity from better buyers, we believe it should consider changing those auction-style sales to discourage the practice of auction sniping.


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