eBay Moves to Boost International Selling
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eBay (NASDAQ: EBAY) thinks your aging baseball card collection is finally ready for the world stage. In a bid to juice international sales, eBay has been testing a service in conjunction with logistics provider Pitney Bowes (NYSE: PBI) that gives sellers an easier way to sell their wares overseas. The service has been unofficial and under wraps, but the Wall Street Journal reported on it earlier this week. While we don't know the results of the trial yet, even at this test stage it's clear that the service has the potential to drive big profits at the web auctioneer.
eBay is already a solidly global company, with 55% of revenue coming from outside the U.S. last quarter, up from 52% in the year-ago quarter. The problem for eBay, though, is that its local customers aren’t so worldly. Only about 40% of sales list international shipping options for would-be foreign buyers. That cuts the potential buyer pool significantly and is a drag on otherwise increasing transaction volume. Most sellers have avoided international sales, blaming hassles related to tracking and returns.
eBay needs that to change. Caught in a maturing market, the company has been forced to take a series of steps toward a more active role in transactions so that its user base doesn’t dwindle. As part of its market-making business model, eBay gets to leave details like shipping, fulfillment, and returns to its customers. These sellers end up relying on the major U.S. shipping services UPS (NYSE: UPS), FedEx (NYSE: FDX), and the Post Office, whose results have been buoyed by the surge in online, direct-to-consumer sales.
eBay would like to stay out of this process, preferring to limit its involvement to issues like arbitration on disputed transactions. That keeps the company’s middle-man status clear and simple. But this international shipping service looks like another step into a more active role in the matchmaking business for eBay. And it fits right in with other initiatives, like PayPal funding “holds,” which have angered some sellers while providing buyers an added layer of fraud protection.
So what’s this mean for eBay’s business? To me, it looks like a clear win. Customers that go global will have access to a larger pool of buyers which is, after all, the reason they come to eBay anyway. They’ll pay a bit more with the new service than if they did their own logistics. But in exchange for that extra coin, they’ll get a simple, transparent process with less headaches, so there's a good chance that the service will be popular among sellers.
As for eBay, the company will benefit from additional sales as the pool of buyers expands. But eBay has much more than that to gain. In its annual report, eBay had this to say about international selling (my emphasis):
Cross-border trade has become an increasingly important source of both revenue and profits for us. Cross-border transactions … generally provide higher revenues and gross margins than similar transactions that take place within a single country or market. We generally earn higher transaction fees for cross-border transactions involving PayPal.... Cross-border trade also represents our primary (or in some cases, only) presence in certain markets in which Internet use is accelerating and we have a limited (or no) domestic Marketplaces business.
So, if it succeeds in boosting exports across the board, eBay should enjoy a revenue jump from increased transactions and also bigger profits from these higher-margin sales. And to boot, the company would get to conscribe millions of customers to spearhead its move into tough markets – like China and Russia – just by peddling their own merchandise.
In one stroke eBay could boost its top and bottom lines and deepen its international presence in hard-to-reach places. Not bad for an international company that’s trying to introduce more of its customers the world.
SigmaSwan has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend eBay, FedEx, and United Parcel Service. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.