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eBays Best Performing Business Segment in 2016 So Far

By Asit SharmaFollow On TwitterImage source: eBay, Inc.

eBays largest business isnt its best performing segment as of late.Since spinning off PayPal in July 2015, eBay has worked to position itself for future growth.Its largest business, the Marketplace segment, has booked roughly $3.0 billion in net revenue so far this year a 1% decline from 2015.Key to nurturing high growth revenue streams may be a company eBay acquired in 2007, which is also the organizations best-performing business segment in 2016 so far: online ticketing giant StubHub.

eBays latest quarter clearly illustrates StubHubs momentum in 2016 versus other segments. Management attributes current year success to innovations in user experience, as well strong sports and concert events in the first half of 2016, including the NBA finals and the musical Hamilton.eBay Segments Net Revenue, Q2 2016 v. Q2 2015Q2 2016Q2 2015% ChangeMarketplace$1,521$1,5240%StubHub$225$16140%Marketing Services & Other$484$42514%

Data source: eBay Inc. SEC filings. All dollar figures in millions.

The chart at left shows StubHubs six quarter growth trend. GMV = Gross Merchandise Value, which represents the total value of merchandise sold on the StubHub platform.

StubHub averages over 21% net revenue on its GMV. Thats nearly triple the take rate of the larger Marketplace division! StubHubs healthy profitability is another reason the company seeks to scale this division up.Chart source: eBay Inc. Q2 2016 8K Earnings Filing.

StubHub is the largest ticket transaction venue in the U.S. Tactically, to juice sales, management has pushed the following initiatives in 2016:

Ticket recommendations according to price, value, and seating.A revised pricing engine on the StubHub site, and improvements in the way pricing is displayed.A virtual reality experience which enables customers to preview event seating in a 360-degree panorama, using StubHubs iOS and Android apps.Image source: StubHub, Inc.

StubHub is also gaining market share via acquisition.

In late May, StubHub announced that it was buying Bilbao, Spain-based Ticketbis, an online ticket marketplace, at an estimated price of $165 million. This will expand StubHubs reach out of the U.S. market and into Europe, Asia, and Latin America.

More recently, in July, the company announced a pending purchase of Ticket Utils, an online intermediary for ticket brokers, for an undisclosed amount.

Image sources: Ticket Utils, Inc., StubHub, Inc., and Ticketbis U.S.Bolt-on Opportunities

In addition to acquisitions, one of StubHubs best opportunities for growth can be found in house.The Marketplace segment is a natural partner for StubHub.Opportunities exist for the two segments to cross-sell goods and services to each other.An intensified effort to bridge native users of each platform is described by eBays CEO on the following slide:

An example of what we are starting to do is have StubHub merchandise, it is a perfectly natural use case. I'm going to the game, I want to buy the jersey and you are going to see more of that over time as we share traffic and as we merchandise and as we drive the eBay tickets category to StubHub. There is a really good complement between traffic, customers and merchandisingDevin Wenig, eBay Inc. CEO, Q2 2016 Earnings Conference CallSource: Thomson Reuters Edited Transcript

eBay will contend with a few caveats as it pursues StubHubs opportunities:Revenue is event-driven, so long-term success depends on further global expansion into local markets. StubHubs business is sensitive to economic conditions: Slower GDP growth and recessions tend to impact consumers ability -- and desire -- to spend on entertainment.After double-digit expansion over the last few quarters, management expects a near-term slowing of StubHubs growth rate.Yet in the final analysis, due to the segments high margin, and relatively small size compared to eBays Marketplace, management is likely to pour additional resources into StubHub over the next several years.

Image source: eBay, Inc.Going Forward

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