Skip to main content

eBay Struggles to Rebuild Traffic

The online auction giant's growth remains stagnant despite recent initiatives.

SAN FRANCISCO -- Online auctions giant


(EBAY) - Get eBay Inc. Report

is stuck in a rut.

Though first-quarter

profit jumped 22%

, growth in active users was almost flat and the number of the new listings was up just 4% from the previous quarter.

eBay's much publicized tweaks recently to its platform to make it more attractive to buyers aren't paying off, and analysts say the company's weak fundamentals in a slow economy pose greater risk than ever to investors.

eBay's pain could get worse. As it struggles to jump start demand, the company's sellers and shareholders are only likely to get squeezed more, analysts say.

eBay is working to improve feedback on its site, offer detailed seller ratings to make the buying process more attractive to customers, hand out more discount coupons to get users to return and standardize shipping schedules.

But that could lead to greater turmoil among already dissatisfied sellers and force more to flee to rival's

(AMZN) - Get Inc. Report

, says Jeffrey Lindsay, an analyst with Bernstein in a research note. Bernstein owns shares of eBay.

"eBay's management has little choice here, but if they successfully rebuild buyer traffic, these sellers will return," says Lindsay, who has a outperform rating on the stock and a $38 price target.

The number of new active customers that eBay can draw holds the key to the company's future.

Scroll to Continue

TheStreet Recommends

Earlier this year eBay

lowered the upfront fees

it charges for listing an item and increased commissions fees in a bid to offer sellers the convenience of paying for a transaction only if they made money off of it. It also offered discount coupons to heavy users in a move to keep them hooked to the site.

But it hasn't been enough to increase its customer base. The number of active users on eBay rose just 1% in the first quarter from the previous quarter to 82.9 million while the number of new listings was up 4% from the previous quarter to 588.5 million.

"eBay's recent changes haven't been material enough to invigorate its base of sellers and buyers," says Steve Weinstein, an analyst with Pacific Crest, which does not own shares or have an investment banking relationship with eBay.

Although eBay shares are trading at less than 16 times his 2009 EPS estimate, Weinstein says the lack of growth in the business, declining seller profitability and lack of growth in the number of active users will cause many investors to stay on the sidelines.

Shares of eBay fell $1.43, or 4.4%, to $30.69 in recent trading. The stock has declined 5.7% since the beginning of the year, while the Nasdaq composite index has been down 10.4% in the same period.

eBay will have to be a lot more aggressive in bringing in new users to the site and making its platform more profitable to sellers, analysts say.

While designed to improve customer experience, the company's recent efforts to offer more detailed seller feedback could increase the short-term cost of doing business on eBay for sellers as they struggle to better manage their customer service. It could also eat into their profitability and lead to greater turmoil among already dissatisfied sellers.

Some could flee to rival, says Bernstein's Lindsay.

Shares of shed 63 cents, or 0.8%, to $73.96 in recent trading. Amazon's stock has fallen 23% since the beginning of the year.

eBay's priority now needs to be to reignite growth in the company's business rather than making small changes to its fee structure to retain buyers and sellers.

Just improving feedback won't cut it with users, says Patel, an analyst with Deutsche Bank in a research note.

eBay needs to rebuild the user interface on its Website to display listings that include more information such as reviews and detailed product information, he says. Patel has a sell rating and a $24 price target on the stock. Deutsche Bank has an investment banking relationship with eBay.

The company also should shift its pricing structure from upfront fees to commissions, suggests Patel.

"The key issue at eBay remains demand," he says. "Improving demand is likely to cure seller discontent and help out growth rates. The downside issue is likely to be lower operating margins."

It's a risk eBay needs to tackle soon. With a slowing economy and a tightening in consumer spending, eBay is running out of time.

As consumers hunt for bargains, they could be pushed to explore sites such as

(OSTK) - Get Inc. Report

that promise low price and cheap shipping or hunt for bargains online through search giant


(GOOG) - Get Alphabet Inc. Report