10% Upside to eBay from Higher Merchandise Listings

November 5th, 2010 by Trefis Team
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The number of merchandise listings on eBay (NASDAQ:EBAY), sites such as eBay.com, Half.com, and Shopping.com, has risen dramatically over the past few years from around 1 billion in 2003 to around 2.9 billion in 2009 [1] driven by increasing online retail penetration and rising Internet use globally.

eBay competes with other e-commerce sites like Amazon (NASDAQ:AMZN), Wal-Mart (NYSE:WMT), Overstock (NASDAQ:OSTK), and Blue Nile (NASDAQ:NILE).

The number of merchandise listings is a key driver for the company as eBay Marketplaces constitutes close to 50% of eBay’s stock price based of our estimates. The average Trefis member forecast predicts listings ahead of our base case corresponding with a 10% increase in the price estimate as outlined below. We currently have a Trefis price estimate of around $31 for eBay’s stock, about 5% above the current market price of around $30.

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More Online Buyers and Sellers

eBay Marketplaces’ core proposition is to bring buyers and sellers together for a low intermediation fee. eBay does this by providing great selection and value for buyers while offering sellers access to a large audience with cost effective marketing. As a result, nearly 40% of the 2.9 billion Listings on eBay’s Marketplaces platform in 2009 converted into actual sales. [2]

With traditional retailers like the U.K.’s Saville Row, Jigsaw and Ed Hardy starting to sell more merchandise on eBay, we see this trend towards e-commerce benefiting eBay markedly. The growing number of Internet users globally, which is expected to touch 2 billion by end of 2010, will also encourage sellers to have more sales listings on e-commerce sites like eBay. [3] According to a recent report by ComScore, U.S. retail e-commerce spending reached $32.1 billion in Q3 of 2010 up 9% versus a year ago. [4] This indicates that consumer spending has started to pick up again – a good sign for eBay.

Rising Online Retail Penetration

Online retail penetration still has tremendous scope for growth. As of 2009, online penetration of electronics & general merchandise in the US was around 10% versus 5.7% internationally. [5] The number of active users on the eBay site has increased from 48 million in 2004 to over 90 million in 2009. [6] In addition, the number of listings per active user has gone up in response to eBay’s efforts to simplify the fee structure.

As consumers spend more online, we expect merchandise listings to increase.  See how our estimates compare to the average member forecast below.

The average of Trefis member forecasts for number of merchandise listings on eBay indicate an increase from 3.5 billion in 2010 to 5.4 billion by 2016, compared to the baseline Trefis estimate of an increase from 3.1 billion in 2010 to 4.5 billion by the end of the Trefis forecast period. The member estimates imply an upside of 9% 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 Number of Merchandise Listings on eBay.

Our complete analysis for eBay’s stock is here.

Notes:

1. The Number of Merchandise Listings on Ebay is reported in the company’s SEC filings.

2. Ebay Sell Through Statistics online

3.  Global Internet users to top 2 billion this year, report says

4. comScore Reports Q3 2010 U.S. Retail E-Commerce Spending Up 9 Percent vs. Year Ago

5. Data on US online penetration of Media & EGM is assimilated from the US Department of Commerce.

6. Ebay 2009 10-K filings