Ebay

2006, Tony Gauvin, UMFK 1
EBay
A Case Study In Strategic
Management
Tony Gauvin, UMFK
April 2006
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

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.

eBay's mission is to provide a global trading
platform where practically anyone can
trade practically anything.
1
eBays Mission Statement
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.

1
Our vision at eBay is provide an online
business to enable anyone to auction
practically anything.

1
Proposed Vision Statement
External Audit
2
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"
Opportunities
Threats
1. Online businesses could possibly be subject to future taxation.
2. Medium fixed cost structure - barrier to entry not significantly high.
3. Ongoining fraud issues, with merchants not sending payment or products.
4. 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.
Threats
Opportunities Weight Rating Weighted Score
1. Current Internet usage estimated to be 420 million worldwide
including 180 million in the US.
0.07 4 0.28
2. Generation X and Y entering the workforce. 0.02 3 0.06
3. Foreign markets especially in Asia are improving. 0.03 2 0.06
4. US and Mexico exceeded $3 trillion in online sales in 2003. 0.04 3 0.12
5. E-commerce in Latin America expected to grow to $82 billion in
2004.
0.03 2 0.06
6. Under 25 percent of online North American households made an
auction purchase in 2003.
0.07 2 0.14
7. Online auction sales are estimated to reach $54 billion in 2007. 0.08 4 0.32
8. The price of personal computers continues to fall. 0.04 3 0.12
9. Internet sales remain tax free. 0.04 3 0.12
10. Some customers prefer to finance large purchases "in house" 0.03 1 0.03
External Factor Evaluation Matrix (EFE)
3
EFE Matrix
EFE Matrix
Threats Weight Rating Weighted Score
1. Online businesses could possibly be subject to future taxation. 0.04 3 0.12
2. Medium fixed cost structure - barrier to entry not significantly high. 0.10 3 0.30
3. Ongoining fraud issues, with merchants not sending payment or
products.
0.08 3 0.24
4. Many people feel the Internet is an unsafe medium to conduct
financial business.
0.07 2 0.14
5. Many households still do not own a PC. 0.07 1 0.07
6. Despite improvements, many foreign economies are still unstable. 0.03 2 0.06
7. High unemployment rates in the US. 0.05 1 0.05
8. Transportation systems in foreign countries could be poor for
delivering products.
0.02 1 0.02
9. Fluctuations in currency and exchange rates, could limit international
business.
0.02 2 0.04
10. Possible website security problems such as hacking. 0.07 3 0.21
1.00 2.56 TOTALS
Weight Rating Score Rating Score Rating Score
0.05 2 0.10 4 0.20 1 0.05
Market Penetration 0.06 4 0.24 4 0.24 2 0.12
Customer Service 0.08 3 0.24 4 0.32 2 0.16
Brand Awareness 0.10 4 0.40 4 0.40 2 0.20
User friendly website 0.05 3 0.15 4 0.20 2 0.10
Revenue Growth 0.15 3 0.45 4 0.60 2 0.30
Financial Condition 0.15 3 0.45 2 0.30 2 0.30
Customer Loyalty 0.05 4 0.20 3 0.15 3 0.15
Market Share 0.10 4 0.40 4 0.40 1 0.10
Product Quality 0.08 4 0.32 4 0.32 4 0.32
Information about user 0.05 4 0.20 4 0.20 3 0.15
Price Competitiveness 0.08 3 0.24 3 0.24 3 0.24
1.00 3.39 3.57 2.19 Totals
Critical Success Factors
eBay
Competitive Profile Matrix (CPM)
Amazon Yahoo! Auction
Advertising
CPM
4
Internal Audit
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
Key Financial Ratios
Company Industry Sector S&P 500
Valuation Ratios
P/E Ratio (TTM) 97.12 41.01 28.90 24.01
Beta 1.77 1.30 0.96 1.00

Growth Rates %
Sales - 5 Yr Growth Rate 90.58 35.47 17.25 9.30
EPS (MRQ) vs Qtr 1 Yr Ago 55.07 27.30 15.43 28.69
EPS (TTM) vs TTM 1 Yr Ago 60.76 27.58 16.37 21.92
EPS - 5 Yr Growth Rate 111.74 43.79 15.23 12.15

Financial Strength
Quick Ratio (MRQ) 3.13 1.22 0.93 1.26
Total Debt to Equity (MRQ) 0.03 0.73 0.82 0.85

5
Key Financial Ratios
Company Industry Sector S&P 500
Profitability Ratios %
Gross Margin (TTM) 80.78 42.23 42.84 47.32
Gross Margin - 5 Yr Avg 79.48 41.08 42.06 47.01
Operating Margin (TTM) 29.01 11.97 12.90 20.33
Operating Margin - 5 Yr Avg 16.21 6.75 11.21 18.35
Net Profit Margin (TTM) 21.00 7.76 7.54 13.12
Net Profit Margin - 5 Yr Avg 13.53 3.74 7.62 11.59

Management Effectiveness %
Return on Assets (TTM) 9.10 8.29 5.91 6.40
Return on Investment (TTM) 10.18 11.53 7.98 9.97
Return on Equity (TTM) 10.50 14.04 13.51 18.71

www.investor.stockpoint.com

eBay Stock Information
eBay as an Investment

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.
Weaknesses
1. Weak promotional and marketing activities
2. eBay does not pay dividends on their stock.
3. Some customers feel the website is cluttered
4. eBays position in the business to business (B2B) market is weak.
5. eBay has very little debt, therefore the company is not taking advantage
of low interest rates to expand.
6. eBay has a higher tax rate since they do not take advantage of
depreciation as well as other companies.
7. The company relies too much on word of mouth advertising, assuming
everyone already knows about eBay.
8. The company does not do enough to convince leery potential customers
that Internet business is financially safe.
9. Longer transaction times, since many merchants will not receive payment
until a buyers check clears.
10. eBay is mainly a cash business.
IFE Matrix
Key Internal Factors Weights Rating
Weighted
Score
0.0 to 1.0 1 to 4
Internal Strengths
eBay is the most well known online auction company in the world 0.1 4 0.4
Strong auction community of loyal customers. 0.04 3 0.12
Excellent financial situation 0.1 3 0.3
Have a fair payment system that encourages merchants to list products. 0.03 3 0.09
Strong presence in strategic global markets 0.05 3 0.15
Experienced management team 0.1 4 0.4
eBay has very little inventory since they do not actually take position of
items sold on their site. 0.05 3 0.15
Strong customer service. 0.03 4 0.12
Percent of revenue in international markets increasing significantly. 0.02 3 0.06
0
Internal Weaknesses
Weak promotional and marketing activities 0.1 1 0.1
eBay does not pay dividends on their stock 0.01 2 0.02
Some customers feel the website is cluttered 0.02 1 0.02
eBays position in the business to business (B2B) market is weak. 0.03 1 0.03
eBay has very little debt, therefore the company is not taking advantage
of low interest rates to expand. 0.05 2 0.1
eBay has a higher tax rate since they do not take advantage of
depreciation as well as other companies. 0.1 1 0.1
The company relies too much on word of mouth advertising, assuming
everyone already knows about eBay. 0.1 1 0.1
The company does not do enough to convince leery potential customers
that Internet business is financially safe. 0.03 1 0.03
Longer transaction times, since many merchants will not receive
payment until a buyers check clears. 0.03 1 0.03
eBay is mainly a cash business 0.01 2 0.02
0
Totals 1 2.34
The Analysis
SWOT Matrix
7
SO Strategies WO Strategies
Expand operations into Asia
(S 1,2 &5; 0 1,3 & 8)
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 WT Strategies
Lobby to keep Internet sales tax
free (S 1&3; T 1)
Increase Fraud Awareness (S 1,4
& 8; T 3)
Use extra Cash to educate all
customers that Internet
Transactions are safe (W 8; T
4&10)
SPACE Matrix
6 -1
2 -4
6 -3
5 -5
6 -6
5 -4
Financial Strength (FS)
Return on Investment (ROI)
Leverage
Liquidity
Environmental Stability (ES)
Rate of Inflation
Technological Changes
Price Elasticity of Demand
Working Capital
Cash Flow
Competitive Pressure
Barriers to Entry into Market
Environmental Stability (ES) Average Financial Strength (FS) Average
-1 5
-2 4
-2 4
-3 4
-5 6
-2.6 5
Competitive Advantage (CA) Industry Strength (IS)
Competitive Advantage (CA) Average Industry Strength (IS) Average
Customer Loyalty Rivalry Among Competitors
Technological know-how Resource Utilization
Control over Suppliers and Distributors Profit Potential
Market Share Growth Potential
Product Quality Financial Stability
SPACE Matrix
6
5
4
3
2
1
-6 -5 -4 -3 -2 -1 1 2 3 4 5 6
-1
-2
-3
-4
-5
-6
IS
ES
CA
FS
Conservative Aggressive
Defensive Competitive
IE Matrix
4.0 I II III
High
3.0 IV V VI
The
EFE
Total Medium eBay
Weighted
Scores
Domestic International
2.0 VII VIII IX
Low
1.0
Strong Average Weak
4.0 to 3.0 2.99 to 2.0 1.99 to 1.0
The Total IFE Weighted Scores
24%
76%
24%
76%
11
Grand Strategy Matrix
Rapid Market Growth
Quadrant II Quadrant I
Strong
Competitive
Position
Slow Market Growth
Weak
Competitive
Position
Quadrant III Quadrant IV
10
QSPM
QSPM
QSPM
QSPM
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
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.

eBays Thoughts
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
14
Recession Normal Boom Recession Normal Boom
EBIT $100,000,000 $400,000,000 $1,000,000,000 $100,000,000 $400,000,000 $1,000,000,000
Interest 0 0 0 75,000,000 75,000,000 75,000,000
EBT 100,000,000 400,000,000 1,000,000,000 25,000,000 325,000,000 925,000,000
Taxes 40,000,000 160,000,000 400,000,000 10,000,000 130,000,000 370,000,000
EAT 60,000,000 240,000,000 600,000,000 15,000,000 195,000,000 555,000,000
# Shares 642,333,333 642,333,333 642,333,333 609,000,000 609,000,000 609,000,000
EPS 0.09 0.37 0.93 0.02 0.32 0.91
Common Stock Financing Debt Financing
Recession Normal Boom Recession Normal Boom
EBIT $100,000,000 $400,000,000 $1,000,000,000 $100,000,000 $400,000,000 $1,000,000,000
Interest 22,500,000 22,500,000 22,500,000 52,500,000 52,500,000 52,500,000
EBT 77,500,000 377,500,000 977,500,000 47,500,000 347,500,000 947,500,000
Taxes 31,000,000 151,000,000 391,000,000 19,000,000 139,000,000 379,000,000
EAT 46,500,000 226,500,000 586,500,000 28,500,000 208,500,000 568,500,000
# Shares 632,333,333 632,333,333 632,333,333 619,000,000 619,000,000 619,000,000
EPS 0.07 0.36 0.93 0.05 0.34 0.92
70 Percent Debt - 30 Percent Stock 70 Percent Stock - 30 Percent Debt
EPS/EBIT Analysis
Decisions
Primary:
Expand aggressively into China

Secondary:
Increase business to business operations
Increase marketing campaigns in Asia
Implementation
Objectives:

Create a fully translated Chinese eBay
site
Increase sales by 35%
Increase number of registered users

Evaluation
Quarterly & Yearly Financial Statements

Annual strategic meetings of division
management and corporate management
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
2005 Highlights
We have an incredible set of assets
http://www.skype.com/ http://www.paypal.com
http://www.ebay.com
Increased marketing
eBay International;

CHINA

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

Questions

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