In what comes as a surprise to no one, eBay (NASDAQ:EBAY) has been a big beneficiary of coronavirus-related shutdowns. The online auction and e-commerce platform has proven an important shopping option for stuck-at-home consumers, not to mention a much-needed selling option for brick-and-mortar retailers that haven't been able to open their doors. The company revised its second-quarter guidance upward last week, in a big way.
There is one critique that surfaces when digging deeper into the touted numbers, however. That is, given the backdrop of the COVID-19 contagion and how it brought store-based retailing to a standstill, eBay arguably didn't add enough regular shoppers to its ecosystem. It begs the question: How many of these new (or renewed) customers are going to stick around once the pandemic is in the rearview mirror?
Big coronavirus boost
The good news is that eBay's second quarter is going to be even better than expected. The company was originally guiding for organic revenue growth of between 2% and 6% year over year, but management thinks the flood of business spurred by the spread of COVID-19 is going to pump that organic growth up to somewhere between 17% and 19%. This in turn prompted eBay to raise its second-quarter adjusted earnings guidance from a range of $0.73 to $0.80 per share to a range of $1.02 to $1.06 per share. Gross merchandise volume should increase 23% to 26% as well.
That growth is being at least partially driven by new "active buyers" -- all told, eBay added six million active buyers over the course of April and May.
But all things considered, that's not many. The company ended its first quarter on March 31 with 174 million active buyers worldwide. That's only a 3.4% sequential increase in its customer headcount, following a comparable 2% increase in active buyers during the previous quarter. Given the unprecedented circumstances, one might have expected more.
They may not stick around
It's not the end of the world. The guidance update also noted that business was accelerating. The quarter ending in June may well add a disproportional number of new, regular users. That somehow seems like the less likely outcome though, as mandated lockdowns are starting to come to a close.
Perhaps the bigger question investors may want to ask themselves now is: How many of these six million newcomers are going to remain regular users once stores and shops reopen, and rival Amazon is fully restocked with the goods it struggled to get when the pandemic was most problematic?
Remember, Amazon stopped accepting non-essential goods for storage at its facilities in mid-March to focus solely on getting the basic necessities into consumers' hands. Things are getting back to normal for the e-commerce giant, which means at least some shoppers who had no choice but to start buying through eBay can now go back to the competition. But it's a time like this when the added value of Amazon Prime starts to become apparent -- eBay doesn't have anything like that.
Time to move to the sidelines
Never say never. It's always possible eBay may find a way to not only keep the bulk of those six million new regulars around and add to their ranks this month (and even into the latter half of the year). While CEO Jamie Iannone only took the helm in the middle of April, he's got a strong track record of using technology to build highly personalized services. The company could certainly use an initiative along those lines.
Iannone is still learning his way around a pretty well-established company, however, in an environment when there's no time to learn. There's only time to react. It could be months before the dust settles, and Iannone starts to fully implement ideas that make eBay a stickier platform.
Between eBay shares surging to record highs last week and the fact that the company opted not to raise its full-year guidance (though it could very well do so in the next earnings report), it wouldn't be crazy to take a profit now and step back ... just to see what happens from here.