By his own admission, eBay Chief Executive John Donahoe is “frustrated.” With good reason. Fourth-quarter results reflect the company’s first-ever quarterly revenue decline, a sign that Donahoe’s effort to reignite growth has yet to take effect.
On Jan. 21, the company said sales dropped 6.4 percent, to $2.04 billion, amid weakness in consumer spending and strength in the U.S. dollar, which reduces the value of overseas sales. “It’s a sign that eBay hasn’t been able to buck the trend” of poor consumer turnout during the holiday season, says Jeff Lindsay, an analyst at New York-based Sanford C. Bernstein. “All the advantage of the online channel has gone mostly to Amazon.”
Fixed-Price Shopping Goes to Amazon
But eBay’s most recent earnings reveal deeper problems than a sour Christmas. As CEO since the March 2008 departure of predecessor Meg Whitman, Donahoe has redoubled efforts to cut eBay’s dependence on auctions, which have fallen out of favor for many consumers, and raise the company’s reliance on fixed-price items. In short, management has tried to make eBay more like online retailing stalwart Amazon.com. Fixed-price sales now account for almost half of all transactions.
Yet, consumers who shop online are flocking to Amazon and other retailers. At eBay, the core online shopping business suffered a double-digit drop in revenue, down 16 percent, to $1.3 billion. Transactions on its site, excluding the especially poor-performing auto category, fell 12 percent over the same period. “At the end of the day, if you compare the experience of buying fixed-price items on eBay vs. buying them on Amazon, Amazon wins,” says Jim Friedland, an analyst at Cowen & Co. who has a neutral rating on eBay’s stock. “It’s such a better shopping experience.”
Amazon doesn’t report earnings until next week. But the site surprised analysts in December when it reported its best Christmas ever,…