eBay (EBAY 0.08%) is one company that benefited from the shift to online shopping at the pandemic's onset. Folks who wanted to avoid shopping in person chose to go online for their essential needs and other items.
However, that initial boost is fading away as economies reopen and folks are less fearful about leaving their homes. Still, some benefits from 2020 could prove long-lasting, and eBay may emerge in a better position than before the outbreak.
Buyers flocked to eBay as they avoided shopping in person. Image source: Getty Images.
Higher-quality buyers
As its fiscal second quarter ended June 30, eBay had 159 million total active buyers. Even though this is down 2% from last year, it is still 3% higher than the same quarter in 2019. So far, it looks like some buyers who came to eBay during the pandemic are going to stick around as economies reopen.
Interestingly, the mix of buyers is also of higher strategic value to eBay. The company is transitioning from legacy tactics used to attract buyers that were resulting in low-value buyers. For instance, I have stopped receiving coupons for 20% off my entire purchase from eBay; these used to arrive to my inbox roughly once every quarter. Instead, management has focused on attracting high-value buyers. Here is CFO Steve Priest discussing how the company defines a high-value buyer:
These include buyers who sell, or buyers who purchase at least six days a year and spend over $800. This high-value segment represents approximately 20% of our buyer base, and they purchase around 75% of our GMV [gross merchandise volume]. High-value buyers grew in Q2 as did the spend per buyer. Low-value buyers on eBay make approximately half of our buyer base, but only purchase about 5% of our GMV.
So not only does eBay have 3% more buyers than in 2019, but its buyer base also likely consists of folks who make more purchases or spend more each time they purchase -- or both.
eBay transitions its payment system
Management is also migrating eBay's buyer and seller base to its payment system. In the fiscal second quarter, 71% of payments were managed through eBay's system, and it's well on its way to over 90% in the third quarter. The new system helps sellers by reducing the number of unpaid items, a scenario where a customer clicks to buy the item but never makes the payment.
In addition, the new system will add to eBay's profitability. The company expects total dollar volume of payments processed to reach $1.8 billion this fiscal year.
Improved profit margin
Importantly, eBay has long been a company that operates with healthy profit margins. Indeed, over the past decade, it has averaged an income before-tax percentage of 28.3%. And management expects profits to expand this fiscal year, telling investors that it expects to improve its operating profit margin by 150 basis points from 2019.
Overall, the changes management has implemented have put eBay in a better position than before the pandemic. Moreover, the stock is trading at a favorable forward price-to-earnings ratio of 17.5. For those reasons, investors can feel good about adding eBay stock to their watch lists.
