The natives are getting restless at eBay (NASDAQ:EBAY). Yesterday's Heard on the Street column in The Wall Street Journal detailed merchant unrest after the leading auctioneer's recent fee hikes aimed at "resetting the balance" by pricing its store listings at similar levels of its pricier conventional submissions.
The anarchistic rumblings are to be expected. Whenever eBay inches its listing or transaction fees higher, active sellers seethe. It's money out of their pockets as they have to either mark up their products to what may be unattractive price points or absorb the hit.
It never fails. The moment eBay tries to milk a little more money out of every transaction, I get an email or two from an angry power seller calling for a boycott of all things eBay.
Media outlets eat up the grassroots disruption. The problem is, a quarter later, eBay dusts itself off and proves that it is still growing. This doesn't mean that dissident defectors aren't leaving a mark on the way out. It only proves that eBay is big and powerful enough to absorb the merchants filing out.
When Meg met Mickey
I had taken Whitman to task last year for not landing the CEO gig at Disney (NYSE:DIS). Before joining eBay eight years ago, she was a Disney executive and was supposedly the only person other than internally promoted Bob Iger to be interviewed to replace Michael Eisner.
Since then, eBay's shares have surrendered nearly a third of their value, while Disney's shares are trading nearly 10% higher. This is important, because past incidents of merchant outrage at eBay fell on mostly deaf ears -- after all, the company was growing nicely and the share price was humming along.
It could be different this time, since ownership has been a painful experience for shareholders that would have to see the stock double in price to approach the all-time high that was set back in February of 2005.
Yesterday's column indicates that bitter sellers want change at the top, but that Wall Street is willing to give Whitman a shot. As long as eBay is growing, it's hard to pull the trapdoor in clear conscience.
However, there are some troubling signs, and some were visible from the vantage point of last quarter's earnings report.
Sacking the quarterback
Taking a look at the company's June quarter, I pointed out the troubling sight of the number of listings growing much faster than the number of registered users and actual final transaction values. The number of listings has risen 35% higher over the past year, but the gross merchandise value of successful auctions climbed just 18% higher in that time. In other words, from the seller's perspective, eBay became a less cost-effective way to move goods this past quarter.
The "resetting" process has come at a bad time. More Internet-savvy entrepreneurs are flocking to the value of directly reaching their potential customers through Google (NASDAQ:GOOG) and Yahoo! (NASDAQ:YHOO), where an interested lead can be attained for just pennies.
Speaking of which, things may get hairy now that eBay and Yahoo! have teamed up to serve up graphical ads on eBay's site. If more sponsored distractions pop up on eBay's site, whisking visitors elsewhere, it will devalue listings just as eBay is trying to convince merchants to pay more for the eBay real estate.
On the bright side
Things aren't that dire for eBay just yet. The popularity of video streams is preoccupying rivals like Google. Earlier this month, Google bumped "Froogle" from its home page to make room for the nascent video offerings. I'm guessing that Google's comparison shopping site will be featured prominently again in time for the holidays, but for now it diminishes the stature of a competitor's magnet for consumers' disposable income.
It would also be nearsighted to dismiss eBay, and Whitman's acumen, based on the slowing growth at the company's namesake site. Whitman has gone fishing for verbs in the past and has PayPal and Skype growing nicely under eBay's watch. Add it up and eBay has some operating margin issues to tackle, but it still grew its top line by 30% this past quarter.
Whitman is being tested. The store merchants know that no other site even comes close to achieving the kind of critical mass in auctions that eBay does. However, their other options are simply made much more attractive now. It's not just the simplicity of paid search. Leaving eBay may mean joining the third party merchant storefronts that Yahoo! and Amazon.com (NASDAQ:AMZN) have available.
So I can't let Whitman skate on the lousy timing of the latest fee hike, but I also have to give her credit for what she has been able to accomplish. How come no one ever discusses how the acquisition of Euro-friendly Skype may help eBay's namesake auction business overseas? Where's the love for Whitman's vision to get into China and online payments before the dot-com bellwethers showed up?
Two years ago, Whitman overtook Carly Fiorina to top Fortune's "Most Powerful Women in Business" list. Fiorina's fall from grace at Hewlett-Packard (NYSE:HPQ) was sealed with the disastrous acquisition of Compaq. Whitman's no Fiorina. Her buyouts are sound and her company isn't doing too shabby once you temper your growth expectations. You can't stumble without a thud and Whitman is nowhere near that point.
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Longtime Fool contributor Rick Munarriz is a satisfied eBay user with 168 positive feedbacks to show for it. He does own shares in Disney and he is a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance. The Fool has an ironclad disclosure policy.
