New CEO, uncertain future for eBay

By Yi-Wyn Yen

After 10 years heading up the world’s largest e-commerce site, eBay CEO Meg Whitman will leave at the end of March and John Donahoe will take over. That much is certain.

But Wall Street remains cautious if Donahoe, a longtime management consultant, can really rev up eBay’s sales engine.

During his first earnings call with analysts Wednesday, Donahoe promised big changes in the next several weeks to help revive eBay’s core business. He discussed his plan to offer fixed-priced goods and an improved customer rating and support system to lure buyers. Next week eBay (EBAY) will lower fees for sellers to list items while taking a bigger cut on sales. “EBay’s best days are ahead,” Donahoe said.

Some analysts aren’t so sure. Despite reporting fourth-quarter revenue that exceeded Wall Street’s expectation, eBay offered disappointing guidance for the first quarter and for 2008. EBay’s fourth quarter revenues rose 27% from the previous year’s record to $2.18 billion. The San Jose-based company said its outlook for 2008 was between $8.5 to $8.7 billion and just $2.0-$2.05 billion for the first quarter. Shares of eBay fell 5 percent in after-hours trading Wednesday.

Some suspect that eBay is low-balling estimates to give the new CEO the best odds to look good. “That was a huge step down, and quite a bit lower than we were expecting,” says Jeffrey Lindsay, a senior analyst with Bernstein. “Maybe eBay didn’t want to set the bar too high for Donahoe, but that could backfire. After what happened with Apple, investors are extremely sensitive with guidance.”

Whitman grew eBay from a small auction site to an online giant with revenues of $7.7 billion in revenue last year. After a decade she decided it was time for a change. “It’s important that new perspective and new eyes come into this company,” Whitman said on the earnings conference call. “It’s difficult to stay fresh for this long. I felt it was the right time to turn over the reins.”

Donahoe’s methodical style is a drastic turn from Whitman, who was known as a big risk taker. Whitman often led by instinct, resulting in the acquisition of PayPal, which raked in $563 million for the fourth quarter, making up a quarter of eBay’s profits. But that risk-taking also led her to buy Skype in 2005. The company conceded it overpaid for the Internet calling service when it took a $1.4 billion charge in the third quarter of 2007.

Donahoe, who spent 18 years at consulting firm Bain, has a much more systematic approach. Several times during the call, he stressed that he would test new models by collecting data points first and would tweak models if they did not immediately succeed. Whitman hired Donahoe three years ago to run eBay Marketplaces, which makes up 70 percent of the company’s revenues. The division’s revenue for the fourth quarter rose to $1.5 billion, a 21% growth from the previous year’s period.

“He seems to be addressing many of the key issues, which is a nice change,” says Derek Brown, an analyst at Cantor Fitzgerald. “He seems to be talking about making more aggressive changes. Whether he will be pulling the right levers at the right time at the right degrees, I don’t know. That’s the $40 billion question.”

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I wrote an interesting post on my blog about my experience on this hot topic that has upset the whole ebay community… It is at the following url:

http://turnebiz.wordpress.com/2008/05/06/did-ebay-kill-your-online-business/

Thanks,
Matt Soares

Posted By turnebiz : May 11, 2008 10:42 pm

Feb 20th will be the Start of the end of EBAY. The New changes will only Benefit other online auction’s especially ONLINEAUCTION.COM

Posted By STEVE MASSEY LAFAYETTE, INDIANA : February 18, 2008 12:06 pm

Any business person who succeeds knows that you can’t build a business on quick sand. Donahoe says they will be tweaking the system this year? How do you sustain profit when you never know when the rules are going to change? Donahoe’s changes support sellers of low priced media items listed in mass. Those sellers account for 60% of Ebay revenue now. So expect a drop of revenue for 2008 of about %30 as other sellers jump ship.

Posted By David Yingling, O’fallon IL : February 7, 2008 12:48 pm

Two things are immediately obvious with the announcement of changes John Donahoe will make effective 2/2/2008. Number 1 – John Donahoe hasn’t got a clue what drives sales on eBay and what made it the giant company it is today. Number 2 – He seems determined to destroy the quirky, unique item, world wide bazaar and turn eBay into an online Wal-Mart. This will be the death of eBay. As the sellers of new items, dropped shipped from some 3rd party warehouse that the eBay seller never sees increased, the vintage and unique items that were the charm and the draw for many buyers have decreased. John Donahoe wants to speed up that demise. I have been an eBay member (both buyer and occasional seller) for 9 years. I can no longer find the types of items that I purchased on eBay as the sellers have been pushed out. I collect vintage glass from the 1890s through the 1950s. The specific pieces that fit in that broad category that I am looking for are already no longer available on eBay. I gave up on eBay last Fall and I certainly will NOT be back to buy some widget I can get at the local big box store from eBay. That is NOT what the site is about. eBay RIP! Also, I am very happy that my stock portfolio does not contain eBay stock. If it did I would be selling as fast as I could before the stock becomes worthless!

Posted By Susan, Peoria, IL : February 6, 2008 7:27 pm

I think I speak for all sellers when I say, we are saturated with disgust for the way are business partner , U-Pay ( Ebay) has treated us for years, but most recently has been the worst. Thousands upon thousands of sellers are ripe and ready to jump Ebays Titantic liner ! Not only did they send us an email on 1-28-2008 disguised as a fee decrease, when in reality it was a huge fee increase , they notified sellers that we would no longer be able to post negative or netural feedback on a buyer as of 2-20-2008 !!!!! This insane ,kiss of death business move instantly breaks the bond, if there ever was one , between the seller and ebay ! The seller is the one who has helped put billions in ebays deep pockets for years . Without the seller Ebay would be nothing ! The feedback system at Ebay is the essence of what makes Ebay work on the internet across the world. Sellers and buyers alike are more inclined to be honest with a fair feedback system in place. The seller can moniter his high end auctions with the ability to weed out any bidders with very poor feedback. All sellers will tell you that this is a very valuable tool that gives us the ability to cancel a problem before it turns into a bigger problem and waste of time. As of 2-20-2008, under ebays new feedback system, buyers will no longer receive a Negative or Netural feedback from a seller even if the buyer deserves it. Sellers are only allowed to post Positive !!! This renders the buyers feedback score as utterly useless to any seller ! The new CEO, John Danahoe , a longtime management consultant is pulling all the wrong levers at the worst possible moment in time ! Mr Donahoe may be a business consultant but he has not proven to be a great online internet auction general. My guess is, he was never a power seller on Ebay for years like me and clearly does not understand the importance of a fair feedback system. I feel like my right to post any feedback I see fit on any buyer has been violated and squashed ! Before you invest , investigate !

Posted By Anonymous : February 2, 2008 4:11 pm

Not to mention that the new feedback system totally takes away a sellers right to voice an opinion about a bad seller. The new feedback system will be set that so BUYERS can NOT receive bad feedback, ONLY positive. Here comes the scammers!

Posted By Philip, Louisville, KY : February 1, 2008 10:03 pm

Yes it is hard to stay fresh but that is exactly what persons placed in charge of large companies must do. They have the responsibility to the public they serve to be good enough to accomplish success! Just showing a short term profit for a few quarters is failure if not accompanied by the molding of procompany attitudes in its employees. This with the generation of appreciation by its customers will guarantee future success.

If profit is obtained by short term tactics such as relying on user fee increases it may take a few months but it will be perceived by both employee and customer who will be angered and soon respond to that anger in a backlash of company distain. Profits will plummet sharply. This need not happen.

Posted By Richard McMurray,Crawfordsville,IN : January 31, 2008 3:00 pm

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