Online marketplace eBay (EBAY +0.41%) reported its fourth-quarter and full-year 2021 earnings after the markets closed on Wednesday, Feb. 23. The results highlighted a company experiencing headwinds as shoppers revert to pre-pandemic shopping behavior.
That was to be expected. Shoppers diverted a large part of their spending online at the pandemic's onset as they looked to avoid crowded places where they could potentially be exposed to COVID-19. Now that billions of doses of an effective vaccine have been administered, people feel more comfortable leaving their homes. As a result, spending on eBay's platform is decreasing.
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eBay is raising fees to sustain revenue
In its fourth quarter ended Dec. 31, 2021, eBay reported gross merchandise volume of $20.7 billion. That was down 10% from the same quarter in the prior year. The metric measures the total dollar sum of spending on its platform. It's vital because eBay earns revenue by taking a percentage of these transactions.
That was the third, consecutive quarter of year-over-year declines in the metric. Unsurprisingly, it follows momentum in economic reopening, which started gaining steam in the second quarter of 2021. The fall is more dramatic in its international segment, which decreased by 17% in Q4 vs. the U.S., which fell 2%.
Interestingly, eBay has sustained revenue growth despite declining consumer spending on its platform. To achieve this feat, the company has increased the transaction take rate, which is the percentage it keeps from each sale. In Q4 2021, that figure was 11.8%, up 180 basis points from 10% in Q4 2020.
Of course, sellers on the platform are not too happy about the change. eBay is taking a more significant share of sales. That leaves them a choice: increase prices to maintain profits or keep prices the same and earn less. The choice is not easy -- if one seller raises prices and competitors don't, the competitors will make more sales. The other option is to leave eBay's ecosystem entirely, which 2 million sellers chose to do.
As of Dec. 31, eBay had annual active sellers of 17 million. That was down by 2 million from the 19 million it boasted as of Sept. 30. Sellers and buyers are equally vital to eBay's success. If fewer items are for sale, buyers will be less interested in frequenting eBay. Similarly, if fewer buyers are visiting, businesses will be less interested in listing items on eBay.
Unfortunately for shareholders, eBay is simultaneously shedding buyers and sellers. In Q4, active buyers decreased by 9% to 147 million.
eBay has a profit focus
eBay expects headwinds to persist and is projecting gross merchandise volume will decline by around 9% in 2022. Surprisingly, the stock was up by 1.5% on the day following the report. Perhaps the market appreciated that management expects adjusted earnings per share to increase by 6.5% despite the headwinds in 2022.
Increasing the take rate puts the company on firmer footing in the long run, serving fewer customers more profitably. Management's philosophy can be a breath of fresh air for investors fatigued by businesses with the "growth at all costs" strategy. If you find yourself in that camp, eBay can be an outstanding stock to put on your list.
