Will eBay Bucks Reward Shareholders?

NEW YORK (TheStreet) -- eBay (EBAY) management has indicated that the eBay Bucks rewards program introduced in Aug. 2010 is gaining traction and enabling higher consumer spending on eBay.

eBay Bucks is a rewards program for shopping on eBay. Shoppers earn 2% of the purchase value of qualified items and are issued an eBay Bucks certificate at the end of each quarter which can be redeemed within the next 30 days. For example, spending $2,500 per quarter on eBay would earn you $50 in eBay Bucks which can be used on future purchases.

eBay Bucks can stimulate more purchases on eBay which can lead to an increase in the company's listings-to-sales conversion rate. eBay's program may also siphon off purchases from competing platforms like Amazon(AMZN) and Overstock(OSTK).

Listing-to-sales conversion rate declining

Listings-to-sales conversion rate represents the percentage of items for sale listed on eBay that are actually sold. We estimate that the conversion rate has declined slowly from 42% in 2006 to 39% in 2009. We believe that this ratio declined in the past due to the recessionary environment forcing customers to cut down on spending. With improving macro conditions, we expect this ratio to stabilize at around 39% in the future.

Can eBay Bucks program boost sales on its website?

According to eBay management, over three million shoppers have enrolled in the eBay Bucks program and spent five times more than those not enrolled. If eBay continues to come up with such innovative programs, this conversion rate could actually increase in the future. There could be an upside of more than 10% to the $31 Trefis price estimate for eBay's stock if eBay's conversion rate were to increase to 50% (half of all listed items sold) by the end of the Trefis forecast period.

You can see the complete $31 Trefis Price estimate for eBay's stock here.

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