Please ensure Javascript is enabled for purposes of website accessibility

eBay Is Revamping Its Ad Business

By Adam Levy - Mar 21, 2017 at 1:24PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

eBay's ad business has been stuck in neutral, but there's a lot of growth potential in it.

eBay (EBAY 2.93%) has quietly built a billion-dollar business without putting much effort into it. The online marketplace's marketing services business generated $1.1 billion in revenue last year, but it's been slowly declining since 2012, when total revenue for marketplace marketing services reached $1.3 billion.

eBay is ready to get serious about advertising, with plans to build up its internal advertising sales team and cut ties with the outside sales firm that had been selling its ads. It's also getting rid of ads that link to other websites, focusing exclusively on ads for products sold on eBay itself.

The move echoes a recent change in Amazon's (AMZN 3.15%) ad business and leverages eBay's unique shopper data, giving it an advantage over Facebook and Alphabet's Google.

 
Exterior of eBay office in Berlin.

Image source: eBay.

Keeping the flywheel spinning

eBay CEO Devin Wenig telegraphed the company's interest in growing sales of ads that focus on product listings on eBay. "Increasingly we're seeing good results from internal ads, ads for eBay sellers promoting their inventory in our search results and in other places on our site," he said on the company's fourth-quarter earnings call. "And for us that's a really, really good flywheel because keeps our buyers inside our marketplace, it allows us to create a new stream of monetization, and it allows our sellers to buy up for promotional activities."

Shifting exclusively to ads that promote products sold through eBay will keep shoppers on its site, potentially increasing gross merchandise volume. As volume increases, merchants have more incentive to sell products on eBay's marketplace and advertise those product listings.

Amazon made a similar move in 2015, and the growth of third-party merchants on Amazon's marketplace is fueling its sales growth. Granted, only a small part of that growth is due to Amazon's revamped ad platform.

The eBay logo.

Image source: eBay.

Better data for advertising

eBay and Amazon have some of the best data for advertising. Few things are a better predictor of future purchases than a shopper's previous purchases. With 167 million active buyers making $84 billion in purchases, eBay has quite a bit of purchase data. And, eBay says its users spend 200 million hours searching and browsing its website every month.

This data can make the online marketplace's platform more attractive than Facebook or Google for lucrative product ads. eBay even argues it's more attractive than Amazon because it "offers full data transparency about advertisers' products" on its marketplace.

eBay also doesn't sell any products directly, which could encourage merchants to favor its platform over Amazon's. Not only does Amazon sell goods itself, it has an increasingly broad range of private labels with which it can significantly undercut competing products' pricing.

 

How big is the opportunity?

The digital advertising space is massive. Google and Facebook are certainly dominant forces, raking in a combined $86.5 billion last year. But eMarketer estimates there was another $108 billion split among the rest of the crowd. By 2020, digital ad sales will reach $320 billion, according to the research group.

After a full year of making changes to its advertising business, Amazon saw its other income segment (which includes advertising and credit card agreements) grow 81% in the fourth quarter. While Amazon only brought in $1.3 billion in other income last year, it's still a huge opportunity for the company.

eBay's recent move echoes Amazon's, and provides a similar opportunity. Given its ad business is already comparable in size to Amazon's, that's a good start. But it needs to revamp the product and get back into growth mode in order to take advantage of the potential.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

eBay Inc. Stock Quote
eBay Inc.
EBAY
$42.89 (2.93%) $1.22
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$109.56 (3.15%) $3.35

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.