EBay
A Case Study In Strategic
Management
Tony Gauvin, UMFK
April 2006
® 2006, Tony Gauvin, UMFK
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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
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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
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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
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High performance company
Years since started
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Registered users
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Gross merchandise volume
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Total PayPal Accounts
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PayPal Payment Growth
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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.
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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.
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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.
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eBay’s 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.
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eBay’s Mission Statement
eBay's mission is to provide a global trading
platform where practically anyone can
trade practically anything.
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1
Proposed Mission Statement
eBay’s mission is to be the world’s 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.
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1
Proposed Vision Statement
Our vision at eBay is provide an online
business to enable anyone to auction
practically anything.
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1
External Audit
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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"
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2
Threats
Threats
1.
2.
3.
4.
5.
6.
7.
8.
9.
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.
Despite improvements, many foreign economies are still unstable.
High unemployment rates in the US.
Transportation systems in foreign countries could be poor for delivering
products.
Fluctuations in currency and exchange rates, could limit international business.
10. Possible website security problems such as hacking.
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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"
® 2006, Tony Gauvin, UMFK
Weight Rating Weighted Score
0.07
4
0.28
0.02
0.03
0.04
3
2
3
0.06
0.06
0.12
0.03
2
0.06
0.07
2
0.14
0.08
0.04
0.04
0.03
4
3
3
1
0.32
0.12
0.12
0.03
20
3
EFE Matrix
1.
2.
3.
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
3
0.24
0.07
2
0.14
0.07
1
0.07
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.
0.03
0.05
2
1
0.06
0.05
0.02
1
0.02
0.02
2
0.04
0.07
3
0.21
TOTALS
1.00
4.
5.
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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
® 2006, Tony Gauvin, UMFK
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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
4
Internal Audit
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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
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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
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Key Financial Ratios
Company Industry
Sector
S&P 500
Valuation Ratios
P/E Ratio (TTM)
Beta
97.12
1.77
41.01
1.30
28.90
0.96
24.01
1.00
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
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
3.13
0.03
1.22
0.73
0.93
0.82
1.26
0.85
Financial Strength
Quick Ratio (MRQ)
Total Debt to Equity (MRQ)
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5
Key Financial Ratios
Company
Industry
Sector
S&P 500
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
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
Management Effectiveness %
Return on Assets (TTM)
Return on Investment (TTM)
Return on Equity (TTM)
9.10
10.18
10.50
8.29
11.53
14.04
5.91
7.98
13.51
6.40
9.97
18.71
www.investor.stockpoint.com
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eBay Stock Information
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eBay as an Investment
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Strengths
1.
eBay is the most well known online auction company in the world.
2.
Strong auction community of loyal customers.
3.
Excellent financial situation.
4.
Have a fair payment system that encourages merchants to list products.
5.
Strong presence in strategic global markets.
6.
Experienced management team.
7.
eBay has very little inventory since they do not actually take position of
items sold on their site.
8.
Strong customer service.
9.
Percent of revenue in international markets increasing significantly.
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Weaknesses
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Weak promotional and marketing activities
eBay does not pay dividends on their stock.
Some customers feel the website is cluttered
eBay’s 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.
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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
eBay’s 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
Weights
0.0 to 1.0
Weighted
Score
Rating
1 to 4
0.1
0.04
0.1
0.03
0.05
0.1
4
3
3
3
3
4
0.4
0.12
0.3
0.09
0.15
0.4
0.05
0.03
0.02
3
4
3
0.15
0.12
0.06
0
0.1
0.01
0.02
0.03
1
2
1
1
0.1
0.02
0.02
0.03
0.05
2
0.1
0.1
1
0.1
0.1
1
0.1
0.03
1
0.03
0.03
0.01
1
2
0.03
0.02
0
2.34
Totals
1
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The Analysis
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SWOT Matrix
SO Strategies
Expand operations into Asia
(S 1,2 &5; 0 1,3 & 8)
ST Strategies
Lobby to keep Internet sales tax
free (S 1&3; T 1)
Increase Fraud Awareness (S 1,4
& 8; T 3)
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)
WT Strategies
Use extra Cash to educate all
customers that Internet
Transactions are safe (W 8; T
4&10)
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7
SPACE Matrix
Financial Strength (FS)
Return on Investment (ROI)
Leverage
Liquidity
Working Capital
Cash Flow
6
2
6
5
6
Environmental Stability (ES)
Rate of Inflation
Technological Changes
Price Elasticity of Demand
Competitive Pressure
Barriers to Entry into Market
-1
-4
-3
-5
-6
Financial Strength (FS) Average
5
Environmental Stability (ES) Average
-4
Competitive Advantage (CA)
Market Share
Product Quality
Customer Loyalty
Technological know-how
Control over Suppliers and Distributors
Competitive Advantage (CA) Average
Industry Strength (IS)
Growth Potential
Financial Stability
Rivalry Among Competitors
Resource Utilization
Profit Potential
5
4
4
4
6
-2.6 Industry Strength (IS) Average
5
-1
-2
-2
-3
-5
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SPACE Matrix
FS
Conservative
Aggressive
6
5
4
3
2
1
CA
-6
-5
-4
-3
-2
-1
1
2
3
4
5
6
IS
-1
-2
-3
-4
-5
-6
Defensive
ES
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Competitive
36
IE Matrix
4.0
The Total IFE Weighted Scores
Strong
4.0 to 3.0
Average
2.99 to 2.0
I
II
Weak
1.99 to 1.0
III
High
3.0
The
EFE
Total
Weighted
Scores
IV
V
24%
VI
24%
eBay
Medium
76%
76%
Domestic
2.0
VII
International
VIII
IX
Low
1.0
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11
Grand Strategy Matrix
Rapid Market Growth
Quadrant II
Quadrant I
Weak
Competitive
Position
Strong
Competitive
Position
Quadrant III
Quadrant IV
Slow Market Growth
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10
QSPM
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QSPM
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QSPM
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QSPM
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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
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eBay’s 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
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EPS/EBIT Analysis
•
•
•
•
•
$Amount Needed: $1,500
Stock Price $45
Tax Rate 80/162=40%
Interest Rate 5%
# Shares Outstanding 609
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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
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Decisions
Primary:
Expand aggressively into China
Secondary:
Increase business to business operations
Increase marketing campaigns in Asia
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Implementation
Objectives:
Create a fully translated Chinese eBay
site
Increase sales by 35%
Increase number of registered users
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Evaluation
Quarterly & Yearly Financial Statements
Annual strategic meetings of division
management and corporate management
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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
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2005 Highlights
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We have an incredible set of assets
http://www.paypal.com
http://www.skype.com/
http://www.ebay.com
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Increased marketing
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eBay International;
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CHINA
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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
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Questions
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