Professional Documents
Culture Documents
- 2009
Case Notes Prepared by: Dr. Mernoush Banton Case Authors: Dr. Lori Radulovich
A.
Case Abstract
EBay Inc. (www.eBay.com) is a comprehensive strategic management case that includes the companys Calendar year-end December 31, 2008 financial statements, competitor information and more. The case time setting is the year 2009. Sufficient internal and external data are provided to enable students to evaluate current strategies and recommend a three-year strategic plan for the company. Headquartered in San Jose, California, EBay Inc. is traded on the New York Stock Exchange under ticker symbol EBAY.
B.
Visionary online business for visionary entrepreneurs who would like to buy or sell almost anything.
C.
We intend to achieve our mission of creating the worlds online marketplace by improving and expanding across three main areas: categories, formats, and geographies. We intend to achieve our mission of creating the worlds leading e-commerce franchise by building upon our core Marketplaces business and building our adjacent businesses. We intend to continue to work toward our mission of creating the worlds leading ecommerce franchise by investing in our core Marketplaces segment and continuing to build our adjacent Marketplaces businesses.
4. 5. 6. 7. 8. 9.
Technology Concern for survival, profitability, growth Philosophy Self-concept Concern for public image Concern for employees
D.
External Audit
eBay
Critical Success Factors Weigh t Ratin g Weighte d Score
Amazon
Ratin g Weighte d Score Ratin g
Other
Weighted Score
Advertising Service / Product Quality Price Competitiveness User Friendly Website Financial Position Customer Loyalty Product Lines Market Share Customer Service Technology Employees Global Expansion Total
0.05 0.08 0.08 0.07 0.10 0.12 0.08 0.10 0.08 0.12 0.05 0.07 1.00
3 3 3 3 2 4 4 4 3 4 3 3
0.15 0.24 0.24 0.21 0.20 0.48 0.32 0.40 0.24 0.48 0.15 0.21 3.32
4 4 2 4 3 3 3 3 4 3 2 4
0.20 0.32 0.16 0.28 0.30 0.36 0.24 0.30 0.32 0.36 0.10 0.28 3.22
1 2 1 2 1 2 2 2 2 2 1 2
0.05 0.16 0.08 0.14 0.10 0.24 0.16 0.20 0.16 0.24 0.05 0.14 1.72
Opportunities Opportunities to offer trade/retail across a broad range of industries and business models Strong long term growth expected in mobile technology usage and need for eBays proprietary Skype Technology in voice and visual communications Increasing growth of online retail sales, even with declining offline retail environment and economy Increased speed and bandwidth technology Average online consumer is educated and earns income of $50,000 or more Growth opportunities in global markets in many of eBays business lines
Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall.
Opportunities for alliances to overcome regulatory issues (tax compliance, trade in counterfeit goods) Opportunities for continued growth PayPal total payment volume in 2008 increased 27% over 2007. PayPal has captured 15% of U.S. and 9% of global e-commerce trade. 1. Expected 5.5% annual growth of world communications market with U.S. web conferencing expected to grow 14.1% from 2008 through 2. Due to weak economy and high unemployment rate, consumers may be looking at substitute products at lower prices Threats Collection of sales taxes may remove consumers perceived value of eBay services Litigious environment, such as limited Internet information sharing, tax collection, etc. Dynamically changing technology environment and market turbulence Strong online and offline competition across all eBays business industries Growing threat of Amazon Risk from Bill Me Later purchases of consumers outstanding loans from CIT Bank Retail industry subject to regional or global economic downturn Potential security breaches 1. Growing demands on Web site support with limited resources 2. Entry barrier is fairly low External Factor Evaluation (EFE) Matrix
Weight
Rating
Weighted Score
0.08 0.05
4 4
0.32 0.2
4 4 2
4. Increased speed and bandwidth technology 5. Average online consumer is educated and earns
income of $50,000 or more
3 2 3
0.04
0.08
0.07
0.28
2 2 3 3 2 2 3 3 2 3
0.1 0.06 0.09 0.18 0.14 0.08 0.18 0.09 0.06 0.21 2.94
8. Potential security breaches 9. Growing demands on Web site support with limited
resources
0.07 0.03
Total
1.00
Positioning Map
Number of Visitors (High)
eBay Amazon
Others
Narrow Product Line Offering Wide Product Line Offering
E.
Internal Audit
Strengths
Value proposition encompasses a variety of exchange mediums & products Global brand recognition and strong consumer trust in a secure trade and communications environment eBay community feedback replicates WOM (Word of Mouth) advertising Large customer data base of multiple target markets in several B2B, C2C and B2C industries Proprietary Skype technology with strong long term expected growth Global presence in 39 markets with 86.3 million active global users (2008) Lower costs of international expansion due to virtual business model Use of eBays Bill Me Later service by major retailers such as Borders, Continental Airlines, Fujitsu, JetBlue, Overstock, QVC, Toshiba, Toys R Us, and Walmart.com Skype is the worlds fastest-growing Internet communication software platform with 405.3 million registered users worldwide as of 2008
Stable operating profit margins across all three business segments despite declining economy with current ratio of 1.8 is better than industry average Weaknesses eBays lack of policing trading activity Litigation with potentially large financial remuneration in several areas: intellectual property and technology infringements, trading of pirated or counterfeit goods, etc. Newer management team -- changes recently made to Sr. V.P. positions Recent 10% reduction in employees indicates poor resource use and potential decline in morale eBays prior expenditures were focused on traditional wired routes and now 50% is allocated toward wireless technology Lack of cash dividend paid to investors reduces attractiveness of a tangible, current return on the stock Substantial risk exposure due to potential consumer defaults on loans held by Bill Me Later customers Stock price fallen from $58.17 in 2004 to $17 per share in July of 2009 Declining total net revenue growth from 29% to 11% (decreases in revenue growth for the year 2007 to 2008 with reductions in revenue growth of Marketplaces and Payments businesses, and only increase in Communications segment. Reduced revenue growth accompanied by increased Web site operations costs (28% increase), payment processing (24% increase), and Skype telecommunication costs (28% increase). Financial Ratio Analysis (October 2009)
Growth Rates % Sales (Qtr vs year ago qtr) Net Income (YTD vs YTD) Net Income (Qtr vs year ago qtr) Sales (5-Year Annual Avg.) Net Income (5-Year Annual Avg.) Dividends (5-Year Annual Avg.) Price Ratios Current P/E Ratio P/E Ratio 5-Year High P/E Ratio 5-Year Low Price/Sales Ratio Price/Book Value eBay 5.70 -26.80 -28.90 31.59 31.81 NA eBay 21.5 NA NA 3.58 2.35 Industry 18.00 6.10 100.80 29.29 56.29 0.00 Industry 53.4 169.5 16.5 2.88 10.47 S&P 500 -5.20 -8.10 24.70 12.97 12.30 11.88 S&P 500 26.6 18.4 3.4 2.10 3.43
Price/Cash Flow Ratio Profit Margins % Gross Margin Pre-Tax Margin Net Profit Margin 5Yr Gross Margin (5-Year Avg.) 5Yr PreTax Margin (5-Year Avg.) 5Yr Net Profit Margin (5-Year Avg.) Financial Condition Debt/Equity Ratio Current Ratio Quick Ratio Interest Coverage Leverage Ratio Book Value/Share
Adapted from www.moneycentral.msn.com
13.70 eBay 71.5 21.0 16.7 77.7 23.9 17.1 eBay 0.02 1.8 1.8 NA 1.4 9.86
36.60 Industry 39.9 8.9 7.0 40.7 10.5 7.8 Industry 0.05 1.7 1.5 -0.5 1.9 9.13
13.10 S&P 500 38.2 9.9 6.9 38.1 16.5 11.5 S&P 500 1.11 1.5 1.2 27.2 3.5 21.58
Avg P/E
Price/ Sales
Price/ Book
12/08 12/07 12/06 12/05 12/04 12/03 12/02 12/01 12/00 12/99
18.00 133.20 41.80 51.10 74.80 72.80 69.40 167.60 370.30 1977.30
Debt/ Equity
2.15 5.95 7.18 13.23 24.32 19.60 16.36 25.07 21.44 76.05
Return on Equity (%)
1.61 3.83 3.77 6.04 11.57 8.57 5.94 12.98 8.76 19.21
Return on Assets (%)
20.8 4.5 18.9 23.8 23.8 20.7 20.6 12.1 11.2 4.3
Interest Coverage
5.4 4.1 NA
Weight
Rating
Weighted Score
4 4 3 4 4 4 4 4
0.06
0.24
0.05
0.15
1. eBay's lack of policing trading activity 2. Litigation with potentially large financial remuneration
in several areas: intellectual property and technology infringements, trading of pirated or counterfeit goods, etc. 3. Newer management team -- changes recently made to Sr. V.P. positions
0.05 0.05
2 2
0.1 0.1
0.04
0.04
0.03 0.05
2 2
0.06 0.1
0.06
0.06
2 1 2
0.02
0.04
Total
1.00
2.98
F.
SWOT Strategies
Strengths 1. Value proposition encompasses a variety of exchange mediums & products Global brand recognition and strong consumer trust in a secure trade and communications environment eBay community feedback replicates WOM (Word of Mouth) advertising Large customer data base of multiple target markets in several B2B, C2C and B2C industries Proprietary Skype technology with strong long term Weaknesses 1. eBays lack of policing trading activity Litigation with potentially large financial remuneration in several areas: intellectual property and technology infringements, trading of pirated or counterfeit goods, etc. Newer management team -changes recently made to Sr. V.P. positions Recent 10% reduction in employees indicates poor resource use and potential decline in morale
expected growth Global presence in 39 markets with 86.3 million active global users (2008) Lower costs of international expansion due to virtual business model Use of eBays Bill Me Later service by major retailers such as Borders, Continental Airlines, Fujitsu, JetBlue, Overstock, QVC, Toshiba, Toys R Us, and Walmart.com Skype is the worlds fastestgrowing Internet communication software platform with 405.3 million registered users worldwide as of 2008 Stable operating profit margins across all three business segments despite declining economy with current ratio of 1.8 is better than industry average
eBays prior expenditures were focused on traditional wired routes and now 50% is allocated toward wireless technology Lack of cash dividend paid to investors reduces attractiveness of a tangible, current return on the stock Substantial risk exposure due to potential consumer defaults on loans held by Bill Me Later customers Stock price fallen from $58.17 in 2004 to $17 per share in July of 2009 Declining total net revenue growth from 29% to 11% (decreases in revenue growth for the year 2007 to 2008 with reductions in revenue growth of Marketplaces and Payments businesses, and only increase in Communications segment.
2. Reduced revenue growth
accompanied by increased Web site operations costs (28% increase), payment processing (24% increase), and Skype telecommunication costs (28% increase). last three years Opportunities 1. Opportunities to offer trade/retail across a broad range of industries and business models Strong long term growth expected in mobile technology usage and need for eBays S-O Strategies
1.
W-O Strategies
1.
Expand marketing efforts into Asian markets where the economy is stronger (S1, S2, S3, O1, O3, O6) 2. Create joint ventures with other global companies such as airlines, mass retailers, Internet based
Increase advertising with special promotional discounts like 10% off every auction transaction (W8, W9, W10, O1, O2, O8, O10) 2. Promote a rebate program of using profitable
proprietary Skype Technology in voice and visual communications Increasing growth of online retail sales, even with declining offline retail environment and economy Increased speed and bandwidth technology Average online consumer is educated and earns income of $50,000 or more Growth opportunities in global markets in many of eBays business lines Opportunities for alliances to overcome regulatory issues (tax compliance, trade in counterfeit goods) Opportunities for continued growth PayPal total payment volume in 2008 increased 27% over 2007. PayPal has captured 15% of U.S. and 9% of global ecommerce trade. 2. Expected 5.5% annual growth of world communications market with U.S. web conferencing expected to grow 14.1% from 2008 through 3. Due to weak economy and high unemployment rate, consumers may be looking at substitute products at lower prices Threats
1. Collection of sales taxes
business for use of eBays Bill Me Later service (S2, S6, S8, O1, O2, O3, O4, O6)
segments such as PayPal and Skype for a specific period of time (W5, W9, W10, O3, O4, O6, O8, O9)
S-T Strategies
1.
W-T Strategies
1. Lay off workforce by 5%
may remove consumers perceived value of eBay services Litigious environment, such as limited Internet
Increase fraud awareness to all customers (S2, S4, T2, T3, T4, T8) 2. Develop a bundling program, utilizing one for all service offering for
and freeze raises for management to improve financial position (W3, W6, W8, W9, W10, T2)
information sharing, tax collection, etc. Dynamically changing technology environment and market turbulence Strong online and offline competition across all eBays business industries Growing threat of Amazon Risk from Bill Me Later purchases of consumers outstanding loans from CIT Bank Retail industry subject to regional or global economic downturn Potential security breaches 2. Growing demands on Web site support with limited resources 3. Entry barrier is fairly low
large / high volume customers and business partners (S1, S2, S4, S5, S6, S8, S9, T4, T5, T7, T9, T10)
G.
SPACE Matrix FS
Conservative
7 6 5 4 3 2 1
Aggressive
CS
IS
-7 -6 -5 -4 -3 -2 -1 -1 -2 -3 -4 -5 -6 1 2 3 4 5 6 7
Defensive
-7
Competitive
ES
Financial Stability (FS) Return on Investment Leverage Liquidity Working Capital Cash Flow Financial Stability (FS) Average Competitive Stability (CS) Market Share Product Quality Customer Loyalty Competitions Capacity Utilization Technological Know-How
4 6 6 6 5
Environmental Stability (ES) Unemployment Technological Changes Price Elasticity of Demand Competitive Pressure Barriers to Entry Environmental Stability (ES) Average Industry Stability (IS) Growth Potential Financial Stability Ease of Market Entry Resource Utilization Profit Potential
-4 -1 -3 -2 -6
-1 -1 -1 -2 -1
6 5 1 3 5
H.
Quadrant III
Quadrant IV
1. 2. 3. 4. 5. 6. 7.
Market Development Market Penetration Product Development Forward Integration Backward Integration Horizontal Integration Related Diversification
I.
IV
IV
VI
VII
VIII
IX
J.
QSPM
Create joint ventures with other global companies such as airlines, mass retailers, Internet based business for use of eBays Bill Me Later Develop a bundling program, utilizing one for all service offering for large / high volume customers and business partners
Key Factors Opportunities 1. Opportunities to offer trade/retail across a broad range of industries and business models 2. Strong long term growth expected in mobile technology usage and need for eBay's proprietary Skype Technology in voice and visual communications 3. Increasing growth of online retail sales, even with declining offline retail environment and economy 4. Increased speed and bandwidth technology 5. Average online consumer is educated and earns income of $50,000 or more 6. Growth opportunities in global markets in many of eBay's business lines 7. Opportunities for alliances to overcome regulatory issues (tax compliance, trade in counterfeit goods) 8. Opportunities for continued growth - PayPal total payment volume in 2008 increased 27% over 2007. PayPal has captured 15% of U.S. and 9% of global e-commerce trade. 9. Expected 5.5% annual growth of world communications market with U.S. web conferencing expected to grow 14.1% from 2008 through 10. Due to weak economy and high unemployment rate, consumers may be looking at substitute products at lower prices Threats 1. Collection of sales taxes may remove consumer's perceived value of eBay services 2. Litigious environment, such as limited Internet information sharing, tax collection, etc. 3. Dynamically changing technology environment and market turbulence 4. Strong online and offline competition across all eBay's business industries 5. Growing threat of Amazon 6. Risk from Bill Me Later purchases of consumer's outstanding loans from CIT Bank 7. Retail industry subject to regional or global economic downturn 8. Potential security breaches 9. Growing demands on Web site support with limited resources
Weight
0.08 0.05
AS 3 4
--4 2 3 --4
--3 4 4 --3
0.04
0.04
0.16
0.07
0.14
0.28
3 1 3 3 --1 2 4 ---
2 2 4 4 --2 3 2 ---
0.07
---
--1.94
---
--2.38
1.00
0.06 0.07
2 4 4 3 1 3 --4
4 3 3 4 3 4 --2
0.06
1 3
0.06 0.15
3 1
0.18 0.05
0.05
0.05 0.05
-----
-----
-----
-----
--1 ----2 2
--2 ----1 1
0.06
0.03
0.04
share in July of 2009 9. Declining total net revenue growth from 29% to 11% (decreases in revenue growth for the year 2007 to 2008 with reductions in revenue growth of Marketplaces and Payments businesses, and only increase in Communications segment. 10. Reduced revenue growth accompanied by increased Web site operations costs (28% increase), payment processing (24% increase), and Skype telecommunication costs (28% increase). SUBTOTAL SUM TOTAL ATTRACTIVENESS SCORE
0.03
0.03
0.06
0.02
0.02
0.04
1.00
1.69 3.63
1.87 4.25
K.
Recommendations
Develop a bundling program, utilizing one for all service offering for large / high volume customers and business partners. This would be programs such as Bill Me Late, Skype, auction at eBay at reduced price for B2B, B2C and C2C customers. Free bundling can expire in 90 days.
L.
EPS/EBIT Analysis
$ Amount Needed: $80 million Stock Price: $23.22 Tax Rate: 27.0% Interest Rate: 5% # Shares Outstanding: 1,282,025
Common Stock Financing Recession Normal Boom $500,000,000 $800,000,000 $1,000,000,000 0 0 0 500,000,000 800,000,000 1,000,000,000 13,500,000,000 21,600,000,000 27,000,000,000 13,000,000,000 20,800,000,000 26,000,000,000 1,287,358,333 1,287,358,333 1,287,358,333 10.10 16.16 20.20 70 Percent Stock - 30 Percent Debt Recession $500,000,000 3,200,000 496,800,000 13,413,600,000 12,916,800,000 Recession $500,000,000 4,000,000 496,000,000 13,392,000,000 12,896,000,000 1,282,025,000 10.06 70 Percent Debt - 30 Percent Stock Recession $500,000,000 800,000 499,200,000 13,478,400,000 12,979,200,000 Debt Financing Normal $800,000,000 4,000,000 796,000,000 21,492,000,000 20,696,000,000 1,282,025,000 16.14 Boom $1,000,000,000 4,000,000 996,000,000 26,892,000,000 25,896,000,000 1,282,025,000 20.20
# Shares EPS
1,285,758,333 10.05
1,285,758,333 16.11
1,285,758,333 20.16
1,283,625,000 10.11
1,283,625,000 16.19
1,283,625,000 20.24
M.
Epilogue
EBay performed slightly better than analysts expected through second quarter of 2009. Revenues and trading volume continued to decline in the marketplaces segment; yet growth in both the PayPal and Skype business segments offset the decline in the marketplaces business segment. EBay also announced to spin off and make an initial public offering of its Skype business segment in the beginning of year 2010. As a result of eBays improved performance in 2009 being better than expected, eBays stock price has risen and caused analysts to upgrade expected earnings for eBay for the 2nd half of 2009.