Lower eBay Take Rates Can Drive More Listings

September 29th, 2010 by Trefis Team
-7.96%
Downside
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Market
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Trefis
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eBay (NASDAQ:EBAY) makes money by taking charging a commission (or “take rate”) on sold through its platform.  The company’s transaction take rate has been stagnant in recent years due to more aggressive pricing to drive higher-priced listings and better conversion rates.  eBay is trying to lure more sellers onto its platform which will increase its listings and better position the company against retailers Amazon (NASDAQ:AMZN) and Wal-Mart (NYSE:WMT)

eBay’s marketplaces (eBay.com, Half.com) account for about 50% of the $30 Trefis price estimate for eBay’s stock, which is about 20% above the current market price of $25.

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In the past, eBay’s Transaction Take Rate has increased from 7% in 2005 to around 8% in 2007 [1].  We expect competitive pressure from Amazon, as well as brick and mortar stalwarts like Wal-Mart, to limit significant improvements in eBay’s take rates.  At the same time, we expect eBay to continue providing more discounts to powersellers, as they improve their service levels, thereby bringing down take rates, but driving higher listings and sales.

The average of Trefis member forecasts for eBay Transaction Take Rate indicates a decrease from 7.8% in 2010 to 6.8% by the end of the Trefis forecast period, in-line with the baseline Trefis estimates. The member estimates imply a downside of 1% to the Trefis price estimate for eBay’s stock.

You can drag the forecast trend-line above to express your own view, and see the sensitivity of Ebay’s stock to Transaction Take Rate.

Our complete analysis for eBay’s stock is here.

Notes:

1. Take Rate is calculated as: Marketplaces Transaction Revenues / Gross Merchandise Volume. Ebay reports both Marketplaces Transaction revenues and Gross Merchandise Volume in its SEC filings.