Ebay

EBay A Case Study In Strategic Management Tony Gauvin, UMFK April 2006
2006, Tony Gauvin, UMFK
Some Acknowledgements
Graphics and some Data for presentation taken from investor.ebay.com The analysis is based in part on the case study prepared by the following students in Spring of 2005
Corey Daigle, Megan Foreman, and Seth Fraser
Other material was provided by the authors of the Case

Marcelo De Mattos and Forest David
2006, Tony Gauvin, UMFK 2
Overview
Some Cool Facts Who we are, What we sell, Where we are Mission and Vision Internal Assessment - Financial Condition - IFE Matrix ?? External Assessment - EFE Matrix - CPM Matrix Strategy Formulation - SWOT Matrix - Space Matrix - IE Matrix - Grand Strategy Matrix - QSPM Matrix - Matrix Analysis Strategic Planning for the Future EPS/EBIT Decisions/Implementation/Eval uation 2004&05 Financials eBay press releases
eBay is evolution
1996 1998: US only, collectibles only
Started by Pierre Omidyar to assist his girl friend in collecting Pez Dispensers
1999 Moving beyond collectibles 1999 Going global 2000 Introducing Fixed Price and eBay Stores 2002 PayPal: removing friction and building a huge new business 2004 2005: Creating other marketplaces Marktplaats, Mobile, Rent.com, Shopping.com, Kijiji, ProStores
Common theme expanding our vision, our market and our opportunity Aspirational goal of growing faster than e-commerce
High performance company
Years since started

Registered users
Gross merchandise volume
Total PayPal Accounts
PayPal Payment Growth
Who we Are
Founded in September 1995, eBay is The World's Online Marketplace for the sale of goods and services by a diverse community of individuals and small businesses. Today, the eBay community includes more than a hundred million registered members from around the world. People spend more time on eBay than any other online site, making it the most popular shopping destination on the Internet.
What we Sell
On an average day, there are millions of items listed on eBay. People come to eBay to buy and sell items in thousands of categories from collectibles like trading cards, antiques, dolls, and house wares to practical items like used cars, clothing, books and CDs, and electronics. Buyers have the option to purchase items in an auction-style format or items can be purchased at a fixed price through a feature called Buy It Now.
Where we Are
People from all over the world buy and sell on eBay. Currently, eBay has local sites that serve Australia, Austria, Belgium, Canada, China, France, Germany, Hong Kong, India, Ireland, Italy, Malaysia, the Netherlands, New Zealand, the Philippines, Singapore, South Korea, Spain, Sweden, Switzerland, Taiwan, the United Kingdom, and the United States. In addition, eBay has a presence in Latin America through its investment MercadoLibre.com.
eBays Community Values

eBay is a community that encourages open and honest communication among all its members. Our community is guided by five fundamental values:
We believe people are basically good. We believe everyone has something to contribute. We believe that an honest, open environment can bring out the best in people. We recognize and respect everyone as a unique individual. We encourage you to treat others the way you want to be treated.
13
eBays Mission Statement
eBay's mission is to provide a global trading platform where practically anyone can trade practically anything.
14
Proposed Mission Statement

eBays mission is to be the worlds most utilized and profitable trading post. Having bright and talented employees that are dedicated to serving both customers and communities, eBay provides the most technologically advanced, reliable, and secure trading platform available to anyone, anywhere, while always doing business in a highly ethical manner.
Proposed Vision Statement
Our vision at eBay is provide an online business to enable anyone to auction practically anything.
16
External Audit
17
Opportunities
Opportunities 1. Current Internet usage estimated to be 420 million worldwide including 180 million in the US. 2. Generation X and Y entering the workforce. 3. Foreign markets especially in Asia are improving. 4. US and Mexico exceeded $3 trillion in online sales in 2003. 5. E-commerce in Latin America expected to grow to $82 billion in 2004. 6. Under 25 percent of online North American households made an auction purchase in 2003. 7. Online auction sales are estimated to reach $54 billion in 2007. 8. The price of personal computers continues to fall. 9. Internet sales remain tax free. 10. Some customers prefer to finance large purchases "in house"
18
Threats
Threats Online businesses could possibly be subject to future taxation. Medium fixed cost structure - barrier to entry not significantly high. Ongoining fraud issues, with merchants not sending payment or products. Many people feel the Internet is an unsafe medium to conduct financial business. 5. Many households still do not own a PC. 6. Despite improvements, many foreign economies are still unstable. 7. High unemployment rates in the US. 8. Transportation systems in foreign countries could be poor for delivering products. 9. Fluctuations in currency and exchange rates, could limit international business. 10. Possible website security problems such as hacking. 1. 2. 3. 4.
19
EFE Matrix
External Factor Evaluation Matrix (EFE)
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Opportunities Current Internet usage estimated to be 420 million worldwide including 180 million in the US. Generation X and Y entering the workforce. Foreign markets especially in Asia are improving. US and Mexico exceeded $3 trillion in online sales in 2003. E-commerce in Latin America expected to grow to $82 billion in 2004. Under 25 percent of online North American households made an auction purchase in 2003. Online auction sales are estimated to reach $54 billion in 2007. The price of personal computers continues to fall. Internet sales remain tax free. Some customers prefer to finance large purchases "in house" Weight Rating Weighted Score 0.07 0.02 0.03 0.04 0.03 0.07 0.08 0.04 0.04 0.03 4 3 2 3 2 2 4 3 3 1 0.28 0.06 0.06 0.12 0.06 0.14 0.32 0.12 0.12 0.03
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EFE Matrix
1. 2. 3. 4. 5. Threats Online businesses could possibly be subject to future taxation. Medium fixed cost structure - barrier to entry not significantly high. Ongoining fraud issues, with merchants not sending payment or products. Many people feel the Internet is an unsafe medium to conduct financial business. Many households still do not own a PC. Weight Rating Weighted Score 0.04 3 0.12 0.10 3 0.30 0.08 0.07 0.07 0.03 0.05 0.02 0.02 0.07 3 2 1 2 1 1 2 3 0.24 0.14 0.07 0.06 0.05 0.02 0.04 0.21
6. Despite improvements, many foreign economies are still unstable. 7. High unemployment rates in the US. 8. Transportation systems in foreign countries could be poor for delivering products. 9. Fluctuations in currency and exchange rates, could limit international business. 10. Possible website security problems such as hacking.
TOTALS
1.00
2.56
21
CPM
Competitive Profile Matrix (CPM) eBay Critical Success Factors Advertising Market Penetration Customer Service Brand Awareness User friendly website Revenue Growth Financial Condition Customer Loyalty Market Share Product Quality Information about user Price Competitiveness Totals Weight 0.05 0.06 0.08 0.10 0.05 0.15 0.15 0.05 0.10 0.08 0.05 0.08 1.00 Rating 2 4 3 4 3 3 3 4 4 4 4 3 Score 0.10 0.24 0.24 0.40 0.15 0.45 0.45 0.20 0.40 0.32 0.20 0.24 3.39 Amazon Rating 4 4 4 4 4 4 2 3 4 4 4 3 Score 0.20 0.24 0.32 0.40 0.20 0.60 0.30 0.15 0.40 0.32 0.20 0.24 3.57 Yahoo! Auction Rating 1 2 2 2 2 2 2 3 1 4 3 3 Score 0.05 0.12 0.16 0.20 0.10 0.30 0.30 0.15 0.10 0.32 0.15 0.24 2.19
22
Internal Audit
23
Organizational Team
Beth Axelrod, Senior Vice President, Human Resources Matt Bannick, President, eBay International William C. Cobb, President, eBay North America John Donahoe, President, eBay Marketplace Michael Jacobson, Senior Vice President and General Counsel Jeff Jordan, President, PayPal Pierre Omidyar, Founder and Chairman of the Board Bob Swan, Senior Vice President, Finance and Chief Financial Officer Maynard Webb, Chief Operating Officer Meg Whitman, President and CEO
Key Financials
End of year 2003
Net Income grew to $442 million, up 77% Resulted in record operating cash flows of $874 million, up 82% Year end Balance Sheet
$5.8 billion in total assets $2.7 billion in cash and investments
25
Key Financial Ratios

Company Industry Valuation Ratios P/E Ratio (TTM) Beta Growth Rates % Sales - 5 Yr Growth Rate EPS (MRQ) vs Qtr 1 Yr Ago EPS (TTM) vs TTM 1 Yr Ago EPS - 5 Yr Growth Rate 97.12 1.77 41.01 1.30 Sector 28.90 0.96 S&P 500 24.01 1.00
90.58 55.07 60.76 111.74
35.47 27.30 27.58 43.79
17.25 15.43 16.37 15.23
9.30 28.69 21.92 12.15
Financial Strength Quick Ratio (MRQ) Total Debt to Equity (MRQ)
3.13 0.03
1.22 0.73
0.93 0.82
1.26 0.85
26
Key Financial Ratios

Company Profitability Ratios % Gross Margin (TTM) Gross Margin - 5 Yr Avg Operating Margin (TTM) Operating Margin - 5 Yr Avg Net Profit Margin (TTM) Net Profit Margin - 5 Yr Avg Management Effectiveness % Return on Assets (TTM) Return on Investment (TTM) Return on Equity (TTM) www.investor.stockpoint.com
Industry
Sector
S&P 500
80.78 79.48 29.01 16.21 21.00 13.53
42.23 41.08 11.97 6.75 7.76 3.74
42.84 42.06 12.90 11.21 7.54 7.62
47.32 47.01 20.33 18.35 13.12 11.59
9.10 10.18 10.50
8.29 11.53 14.04
5.91 7.98 13.51
6.40 9.97 18.71
eBay Stock Information
28
eBay as an Investment
29
Strengths
1. 2. 3. 4. 5. eBay is the most well known online auction company in the world.
Strong auction community of loyal customers.

Excellent financial situation. Have a fair payment system that encourages merchants to list products.
Strong presence in strategic global markets.

Experienced management team. eBay has very little inventory since they do not actually take position of items sold on their site. Strong customer service. Percent of revenue in international markets increasing significantly.
6.
7. 8. 9.
Weaknesses
1. 2. 3. 4. 5. Weak promotional and marketing activities eBay does not pay dividends on their stock. Some customers feel the website is cluttered eBays position in the business to business (B2B) market is weak. eBay has very little debt, therefore the company is not taking advantage of low interest rates to expand. eBay has a higher tax rate since they do not take advantage of depreciation as well as other companies. The company relies too much on word of mouth advertising, assuming everyone already knows about eBay. The company does not do enough to convince leery potential customers that Internet business is financially safe. Longer transaction times, since many merchants will not receive payment until a buyers check clears. eBay is mainly a cash business.
6.
7. 8. 9. 10.
IFE Matrix
Key Internal Factors Internal Strengths eBay is the most well known online auction company in the world Strong auction community of loyal customers. Excellent financial situation Have a fair payment system that encourages merchants to list products. Strong presence in strategic global markets Experienced management team eBay has very little inventory since they do not actually take position of items sold on their site. Strong customer service. Percent of revenue in international markets increasing significantly. Internal Weaknesses Weak promotional and marketing activities eBay does not pay dividends on their stock Some customers feel the website is cluttered eBays position in the business to business (B2B) market is weak. eBay has very little debt, therefore the company is not taking advantage of low interest rates to expand. eBay has a higher tax rate since they do not take advantage of depreciation as well as other companies. The company relies too much on word of mouth advertising, assuming everyone already knows about eBay. The company does not do enough to convince leery potential customers that Internet business is financially safe. Longer transaction times, since many merchants will not receive payment until a buyers check clears. eBay is mainly a cash business Totals Weights 0.0 to 1.0 0.1 0.04 0.1 0.03 0.05 0.1 0.05 0.03 0.02 Rating 1 to 4 4 3 3 3 3 4 3 4 3 Weighted Score 0.4 0.12 0.3 0.09 0.15 0.4 0.15 0.12 0.06 0 0.1 0.02 0.02 0.03 0.1 0.1 0.1 0.03 0.03 0.02 0 2.34
0.1 0.01 0.02 0.03 0.05 0.1 0.1 0.03 0.03 0.01 1
1 2 1 1 2 1 1 1 1 2
32
The Analysis
33
SWOT Matrix
SO Strategies
Expand operations into Asia (S 1,2 &5; 0 1,3 & 8)
WO Strategies
Start B2B operations in Asia (W 4,5,&10, O 4,7 & 9) Increase advertising (1 1,6,7 & 10; 0 1,3,4,6 & 8)
ST Strategies
Lobby to keep Internet sales tax free (S 1&3; T 1) Increase Fraud Awareness (S 1,4 & 8; T 3)
WT Strategies
Use extra Cash to educate all customers that Internet Transactions are safe (W 8; T 4&10)
34
SPACE Matrix
Financial Strength (FS) Return on Investment (ROI) Leverage Liquidity Working Capital Cash Flow Financial Strength (FS) Average 6 2 6 5 6 5 Environmental Stability (ES) Rate of Inflation Technological Changes Price Elasticity of Demand Competitive Pressure Barriers to Entry into Market Environmental Stability (ES) Average -1 -4 -3 -5 -6 -4
Competitive Advantage (CA) Market Share Product Quality Customer Loyalty Technological know-how Control over Suppliers and Distributors Competitive Advantage (CA) Average
-1 -2 -2 -3 -5
Industry Strength (IS) Growth Potential Financial Stability Rivalry Among Competitors Resource Utilization Profit Potential
5 4 4 4 6 5
-2.6 Industry Strength (IS) Average
35
SPACE Matrix
Conservative FS 6 5 4 3 2 1 CA IS Aggressive
-6
-5
-4
-3
-2
-1 -1 -2 -3 -4 -5 -6
Defensive
ES
Competitive
36
IE Matrix
4.0 Strong 4.0 to 3.0
The Total IFE Weighted Scores

I Average 2.99 to 2.0 II
Weak 1.99 to 1.0
III
High
3.0
IV
24%
VI
The EFE Total Weighted Scores
24%
Medium
76%
eBay
76%
Domestic 2.0 VII VIII
International IX
Low
1.0
37
11
Grand Strategy Matrix

Rapid Market Growth Quadrant II Quadrant I
Weak Competitive Position
Strong Competitive Position
Quadrant III Slow Market Growth 2006, Tony Gauvin, UMFK
Quadrant IV
38
10
QSPM
39
QSPM
40
QSPM
41
QSPM
42
Suggestion/Recommendations
New Strategies
Expand to all countries of the world
Cost: $500,000.00-1,000,000.00(advertising)
Advance in security of personal information

1,000,000.00+
Increase in Industry
N/A
Increase revenues by capturing more customers

N/A
Look into new pay system or create own (PayPal only in 38 countries)
Millions
eBays Thoughts
We believe that our continued profitability at historical levels will depend in large part on our ability to do the following:
attract new users and keep existing users active on our websites; manage the costs of our business, including the costs associated with maintaining and developing our websites, customer support, transaction and chargeback rates, and international and product expansion; maintain sufficient transaction volume to attract buyers and sellers; increase the awareness of our brands; and provide our customers with superior community, customer support, and trading experiences.
From 2003 annual report
EPS/EBIT Analysis
$Amount Needed: $1,500 Stock Price $45 Tax Rate 80/162=40% Interest Rate 5% # Shares Outstanding 609
45
14
EPS/EBIT Analysis
EBIT Interest EBT Taxes EAT # Shares EPS Common Stock Financing Debt Financing Recession Normal Boom Recession Normal Boom $100,000,000 $400,000,000 $1,000,000,000 $100,000,000 $400,000,000 $1,000,000,000 0 0 0 75,000,000 75,000,000 75,000,000 100,000,000 400,000,000 1,000,000,000 25,000,000 325,000,000 925,000,000 40,000,000 160,000,000 400,000,000 10,000,000 130,000,000 370,000,000 60,000,000 240,000,000 600,000,000 15,000,000 195,000,000 555,000,000 642,333,333 642,333,333 642,333,333 609,000,000 609,000,000 609,000,000 0.09 0.37 0.93 0.02 0.32 0.91
EBIT Interest EBT Taxes EAT # Shares EPS
70 Percent Stock - 30 Percent Debt 70 Percent Debt - 30 Percent Stock Recession Normal Boom Recession Normal Boom $100,000,000 $400,000,000 $1,000,000,000 $100,000,000 $400,000,000 $1,000,000,000 22,500,000 22,500,000 22,500,000 52,500,000 52,500,000 52,500,000 77,500,000 377,500,000 977,500,000 47,500,000 347,500,000 947,500,000 31,000,000 151,000,000 391,000,000 19,000,000 139,000,000 379,000,000 46,500,000 226,500,000 586,500,000 28,500,000 208,500,000 568,500,000 632,333,333 632,333,333 632,333,333 619,000,000 619,000,000 619,000,000 0.07 0.36 0.93 0.05 0.34 0.92
46
Decisions
Primary: Expand aggressively into China Secondary: Increase business to business operations Increase marketing campaigns in Asia
47
Implementation
Objectives:
Create a fully translated Chinese eBay site Increase sales by 35% Increase number of registered users
48
Evaluation
Quarterly & Yearly Financial Statements
Annual strategic meetings of division management and corporate management
49
2004 Financial Information

More than 104.8 million registered users
327.7 million items More than $8 billion in gross merchandise sales
* All from first quarter of 2004
50
2005 Highlights
51
We have an incredible set of assets
http://www.paypal.com
http://www.skype.com/
http://www.ebay.com
Increased marketing
53
eBay International;
54
CHINA
55
eBay in the News

March 30, 2006 eBay Statement on Supreme Court Oral Argument and MercExchange Patent Reexamination March 6, 2006 eBay Announces Matt Bannick To Head Efforts in Corporate Philanthropy and the Developing World February 27, 2006 eBay Community To Gather in Las Vegas for 5th Annual eBay Live! Conference February 24, 2006 Celebrities Turn to eBay for Academy Awards Looks December 21, 2005 Matt Carey Named Chief Technology Officer for eBay Marketplaces November 3, 2005 Star Wars LEGO Sets and Thomas the Tank Engine Top eBay's 2005 Hot New Toys List October 14, 2005 eBay Completes Acquisition of Skype
56
Questions
57

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EBay A Case Study In Strategic Management Tony Gauvin, UMFK April 2006

2006, Tony Gauvin, UMFK

Other material was provided by the authors of the Case

High performance company

Years since started

2006, Tony Gauvin, UMFK

Gross merchandise volume

2006, Tony Gauvin, UMFK

Total PayPal Accounts

2006, Tony Gauvin, UMFK

PayPal Payment Growth

2006, Tony Gauvin, UMFK

eBays Community Values

2006, Tony Gauvin, UMFK

eBays Mission Statement

2006, Tony Gauvin, UMFK

Proposed Mission Statement

Proposed Vision Statement

2006, Tony Gauvin, UMFK

2006, Tony Gauvin, UMFK

2006, Tony Gauvin, UMFK

2006, Tony Gauvin, UMFK

2006, Tony Gauvin, UMFK

2006, Tony Gauvin, UMFK

2006, Tony Gauvin, UMFK

2006, Tony Gauvin, UMFK

2006, Tony Gauvin, UMFK

Key Financial Ratios

90.58 55.07 60.76 111.74

35.47 27.30 27.58 43.79

17.25 15.43 16.37 15.23

9.30 28.69 21.92 12.15

Financial Strength Quick Ratio (MRQ) Total Debt to Equity (MRQ)

2006, Tony Gauvin, UMFK

Key Financial Ratios

80.78 79.48 29.01 16.21 21.00 13.53

42.23 41.08 11.97 6.75 7.76 3.74

42.84 42.06 12.90 11.21 7.54 7.62

47.32 47.01 20.33 18.35 13.12 11.59

9.10 10.18 10.50

8.29 11.53 14.04

5.91 7.98 13.51

6.40 9.97 18.71

eBay Stock Information

2006, Tony Gauvin, UMFK

2006, Tony Gauvin, UMFK

Strong auction community of loyal customers.

Strong presence in strategic global markets.

2006, Tony Gauvin, UMFK

2006, Tony Gauvin, UMFK

2006, Tony Gauvin, UMFK

-2.6 Industry Strength (IS) Average

2006, Tony Gauvin, UMFK

2006, Tony Gauvin, UMFK

The Total IFE Weighted Scores

Weak 1.99 to 1.0

The EFE Total Weighted Scores

Domestic 2.0 VII VIII

2006, Tony Gauvin, UMFK

Grand Strategy Matrix

Weak Competitive Position

Strong Competitive Position

Quadrant III Slow Market Growth 2006, Tony Gauvin, UMFK