Our latest TheTicketingBusiness finance insights post examines StubHub’s performance within the latest set of eBay results.
This week e-commerce marketplace eBay reported its first quarter 2019 financial results delivering a self-described ‘solid’ but unspectacular performance.
Based on the results and increased confidence for the remainder of the year, eBay raised 2019 revenue and EPS guidance.
Following the results release and related Earnings Call (transcript here) eBay’s share price jumped just under 5% with a number of analysts increasing their stock price targets including Deutsche Bank and JPMorgan Chase.
eBay’s falling GMV
Reviewing the actual results, overall eBay Gross Merchandise Volume (GMV) was down 4% to $22.6bn, despite its active buyer base growing 4% to 180 million.
However, revenues were also up 4% at $2.6Bn indicating no real pricing leverage, of which 60% was derived from international territories (with a slightly unfavourable FX impact), and net income exceeded analyst estimates with $518M.
As usual the majority came from the marketplace platforms, and eBay said it intermediated nearly $220M in GMV during Q1 following the initiation of a multi-year rollout of a managed payments capability with the expectation this would rise later this year when contractual limitations eased.
Investor activism drives review
eBay’s response to recent investor activism (led by Elliott Management Corp whom acquired a 4% eBay stake, and Starboard Value) whom agitated for change, saw a focus on ‘disciplined’ cost control, returning $1.5Bn to investors through a 42M share buyback of Common Stock and paid out $125M in Q1 in its first-ever dividend payment.
eBay also reaffirmed that in Q1 it initiated – with the assistance of external financial advisors, a strategic review of its asset portfolio – including but not limited to StubHub and eBay Classifieds Group. But that there is no assurance that the strategic review will result in a sale, spin-off or other business combination.
eBay shares have gained over 30 percent this year since the intervention by investors, and in March, ebay appointed two new directors, including an Elliott Management partner.
eBay’s Classifieds revenue equated to $256M, up 4% Y-O-Y and its ticketing marketplace subsidiary StubHub delivered $1.02Bn GMV and $230M revenues but was down 3% Y-O-Y.
In fact, Q1 2019 reflected StubHub’s lowest GMV and revenue levels in four quarters:
As the chart reveals seasonality is more pronounced within StubHub than the eBay marketplace which reflects the importance of its predominately US sports-based inventory.
Indeed, the decline in StubHub results was partially explained as ‘softness’ within the U.S. College Football Championship and lower resale demand for this year’s Super Bowl.
Apparently, the Q1 results would have been worse but for better-than-expected growth in NBA ticketing but eBay claimed incremental improvements in the StubHub customer experience, with enhanced merchandising and cross-selling between platforms.
eBay intends to continue to direct ticket demand from its marketplace towards StubHub’s tailored vertical experience in order to combat the volume deceleration.
MS&O (Marketing Services & Other) revenue for Q1 was $7 million, most of which refers to first party inventory. This is a nascent area of the StubHub business where they are leveraging their relationship with primary sellers to purchase tickets directly and provide more inventory to marketplace buyers. eBay notes that this inventory typically delivers a lower margin but believes it to be positive for their business and customers.
The Q1 report also revealed thinner margins for StubHub in part driven by an increased spend in search engine marketing and buyer incentives, and that StubHub’s international expansion will continue to be modestly dilutive.
eBay reconfirmed within the 10-Q that its StubHub marketplace is subject to a number of future risks including: changes in tax regulations and seller liabilities; regulatory oversight and anti-scalping laws in particular outside the U.S.; lawsuits by unsuccessful ticket buyers; competitive moves from event organizers and professional sports teams restricting or prohibiting transferability of tickets; and the increased number of other ticket service companies whom have begun to use market-based pricing strategies.
eBay Product & Technology
eBay claimed a number of product innovations, despite an 11% reduction in productd evelopment costs from the prior quarter, including:
- quick-and-simple customer registration with an expedited process on both mobile and desktop;
- launched a search feature enabling customers to explore and discover products using pictures and words;
- delivering a series of AI enhancements to the eBay Seller Hub introducing a new ‘Offer to Buyers’ feature that enables sellers to proactively make offers to interested buyers.
Alongside this StubHub also recently announced new Developer Platform and APIs enabling developers and sellers to integrate with StubHub, as well as giving them the ability to onboard and price their inventory with ease.
In summary, the eBay Q1 results reflect a renewed focus on costs (for example, stripping out marketing and product development expenses), a favourable FX gain, and modest gains in audience and revenues. Within that StubHub is arguably flat if not trending downwards.
StubHub has not adopted the traditional supply-side led structure of the ticketing sector and so does not have a secured access to inventory and is experiencing increased commercial competition.
Despite its apparent scale – annually listing tickets for over 10 million live sports, music and theatre events in more than 40 countries – StubHub’s marketplace is therefore subject to seasonality of supply and the vagaries of market demand impacted by changing tastes, FOMO and the level of consumer disposable income.
As a marketplace for sellers and buyers it does not (currently) control a robust access to inventory.
In order to deliver meaningful revenue growth StubHub has recently increased its fees to 15 per cent for ticket sellers in North America that attract less than $250,000 (€221,000/£191,000) in sales, while big brokers see no change.
Though there may be a short-term positive impact from this decision, this may create problems in the long-run as a fee structure that alienates sellers (or encourages postings elsewhere) may result in less traffic and could force downward pressure on the company in the medium-term.
Going forward StubHub will have to reimagine aspects of its operations or it will continue to feel pressure from:
- competitors including other secondary and evolving primary+ marketplaces;
- the growing adoption of dynamically-priced inventory;
- regulations extending the ability of event organizers and Rights Owner to enforce T&C’s with the technical limiting of unauthorised ticket transferability.
Against this backdrop, one analyst on SeekingAlpha went so far as to call eBay “The Biggest Lemon In The Tech Sector” with this warning: “Seeing as eBay’s stock has already jumped >30% in the year-to-date despite little fundamental progress, investors should lock in their gains and invest elsewhere. eBay will be one of the hardest-hit stocks if the market turns south, as one of the few large-cap companies in the technology sector that is experiencing step year-over-year revenue/GMV deceleration and decline.”
Will offloading StubHub add value or diminish the core of this giant online marketplace? And, if the business review concludes that it’s the right time to sell StubHub, who would want to acquire the world’s largest ticketing marketplace?
Other articles in our Finance Insights series:
- (19th April 2019): DEAG – Growing & diversifying the portfolio
- (4th April 2019): Eventbrite’s stock performance since IPO
- (22nd March 2019): CTS Eventim’s dividends and performance
*ABOUT THIS ANALYSIS: This series of financial insights is provided by the The FP&A Team at TheTicketingBusiness. The FP&A Team comprises a group of industry finance experts who volunteer their expertise to provide ad hoc analysis of key industry financial, M&A, funding and investment news. All in an effort to better-inform the market and support the industry’s long term development. Any questions or feedback welcome to [email protected]
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