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eBAY INC. : A CASE STUDY

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Abstract

This paper intends to conduct a company analysis on eBay Inc. Both the external and internal
audit have been included in this report. Tools such as PESTEL, SWOT, Consumer Profile Matrix
(CPM) and External Factor Evaluation Matrix (EFEM) have been used in the report to conduct
the external analysis. On the other hand, financial ratios have been computed in the internal
analysis section.
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Table of Contents

Introduction ..................................................................................................................................... 4

1.0 Vision, Mission/ Objectives and Values ................................................................................... 4

2.0 External Audit ........................................................................................................................... 5

2.1 PESTEL Analysis ................................................................................................................. 5

2.2 SWOT Analysis .................................................................................................................... 6

2.3 Consumer Profile Matrix (CPM) .......................................................................................... 8

2.4 External Factor Evaluation Matrix (EFEM) ......................................................................... 8

3.0 Internal Audit ............................................................................................................................ 8

3.1 Strengths and Weaknesses .................................................................................................... 8

3.2 Financial Ratio Analysis ....................................................................................................... 9

3.2.1 Liquidity Ratio ............................................................................................................... 9

3.2.2 Profitability Ratio........................................................................................................... 9

3.2.3 Leverage Ratio ............................................................................................................... 9

3.3 Internal Factor Evaluation (IFE) Matrix ................................................................................. 10

Conclusion .................................................................................................................................... 10

Reference List ............................................................................................................................... 11

Appendix ....................................................................................................................................... 13
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Introduction
eBay Inc. is an internet based multinational corporation headquartered in California and is one
of the largest trending online market place for consumer goods and services. This case study
focuses on the analysis of economic performance and growth of eBay Inc. The paper analysis in
depth the core values and the mission of the company and then utilizes the analysis tools like
PESTLE and SWOT for studying the internal and external factors that are accelerating the
business performance of the company. On the other hand Consumer Profile Matrix (CPM)
illustrates the comparative perspective of the company in the online market with its competitor
Amazon. The case study assesses the major internal strengths and weaknesses of the company by
IFE (Internal Factors Evaluation) and EFE (External Factor Evaluation) matrixes. The case study
ends with the financial ratio analysis evaluated from the annual financial statement of the
company to have an overview of the financial strength of eBay Inc.

1.0 Vision, Mission/ Objectives and Values

eBay Inc. was in fact the first virtual online business platform for business entrepreneurs founded
by Pierre Omidyar in 1995. Its major subsidiaries operating in America and other parts of the
world are MercadolLibre, Inc., StubHub, half.com, Auction Co., eBay Motors etc. It has been
experiencing tremendous growth in terms of increasing number of active dealers and market
share in the global E-commerce market. The revenues of the market place grew by 13%, whereas
the number of active users of the eBay forum increased by 14% which implies the healthy
outlook of the company (Forbes.com, 2014).The mission or the main objective of the company is
to create a vast online market place by expanding across the three main prospects of the online
trading i.e. categories, geographies and formats. It not only aims at expanding its range of online
products through incorporating wide number of categories and distinctive format of trading
online but also strengthening their franchise in the E-commerce platform by investing more in
their core market segments. eBay Inc. operations has been segregated into three major segments
to fulfil its objectives:

1. Marketplaces Services and Platforms: It includes the marketplaces platforms like eBay.com,
StubHub, Shopping.com, Online Advertising, Online Classifieds and Rent.com. While StubHub
is a market place for buying and selling of tickets of shows, sports, events and theatres online,
Shopping.com comes as a unique platform for comparison of millions of products through
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reviews. The Rent.com offers the listings of apartments for rents, whereas the Online
Advertisements and Classifieds segments of eBay Inc. offers the reporting of advertisements and
help the ones seeking for jobs and other services at a local level (David, 2010).

2. Payments: The payments portion of eBay Inc. includes two most trusted online transaction
services like PayPal and Bill Me Later which allows the consumers to make and receive
payments as well as attain instant credit in a secured way (David, 2010).

3. Communications: Skype was acquired by eBay Inc., is one of the leading Internet
communication platform which allows buyers and seller to have 24/7 communication through the
services of voice and video conferencing (David, 2010).

2.0 External Audit

2.1 PESTEL Analysis

The PESTLE analysis of eBay Inc. is explained in this section which illustrates the major
external elements driving the performance or affecting the performance of the company.

(Source: VanHoose, 2011)

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Political Factors: eBay Inc. have been collecting taxes on their sale of goods and services since
the legislation was passed on 2010. This may result in significant fall in their trading activities as
the costs to the sellers increased (David, 2010).

Economic Factors: The major economic factors that are affecting the revenues of eBay Inc. is the
fluctuations in the exchange rate of the US dollar. As it conducts more that 50 percent of
business outside the country with the foreign partners over the world, the weakening of U.S.
dollar in any of the partner country will result in fall in profitability.

Social Factors: The enormous expansion of eBay Inc. across the world within a short span has
resulted in data security breaches. Millions of users have filed legal cases against them which
harmed their social image and since then, eBay Inc. are making huge amount of investments for
upgrading the security systems and ensuring adequate insurance policies to prevent such losses
in future (Goyenko, Holden and Trzcinka, 2009).

Technological Factors: The technological advances are in the forefront of eBay Inc.’s business
strategy to emerge as a trusted online forum for trade on vast range of goods and services.
Through substantial investments in technology, it can add innovative features and expand its
network of operations which make it more competitive in the international E-commerce market
(VanHoose, 2011).

Legal Factors: eBay Inc. has several long term legal contracts with marketing, technology and
consumer support agents which means that they have to bear the burden of fulfilling those
contractual obligations regularly even if they are facing revenue crisis.

Environmental Factors: The large scale online trading of goods involved the practices of
packing, distribution and transportation of goods from the warehouse to the consumers. The wide
chain of logistics activities are therefore supposed to harm the environment in the form of
generation of plastic wastes and pollution (Meier and Stormer, 2009).

2.2 SWOT Analysis

The SWOT Analysis of eBay Inc. is illustrated in brief in the given table.
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Table No: 1 SWOT of eBay Inc.

Strengths Weaknesses
1. It has emerged as the leading internet market 1. eBay Inc. charges high cost from the sellers
place. for listing and selling their goods which
2. Being a leader in online auctioning, it has sometimes results in zero profit situation for the
competitive advantage over other giant retailers sellers selling low priced product (Serrano-
in the E-commerce market. Cinca, Fuertes-Callén and Gutiérrez-Nieto,
3. It has high degree of localisation in all the 2010).
countries where they have their online 2. eBay Inc. has not devised any future growth
marketplace (Wamba, et al, 2008). strategy for their business i.e whether they are
4. eBay Inc. has their own payment system like heading towards becoming or increasing the
PayPal.com and Bill Me Later. product base through acquisitions ( Kim, Kim
5. A well reputed Brand name. and Shin, 2009).
Opportunities Threats
1. The growing number of online retailers and 1. It has been facing issues regarding online
consumers who are using the online payment data security as the growing number of online
system has provided growth opportunity to payment users has made it a target zone for
PayPal and Bill Me Later. identity thefts (Lawrence and Tar, 2010).
2. The company has been finding out ways for 2. Fluctuations in the exchange rate.
increasing its number of services and products 3. Stiff competition from other giant online
as well as acquisitions (Mulpuru, Harteveldt retailers like Amazon (Datta, 2011).
and Roberge, 2011).
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2.3 Consumer Profile Matrix (CPM)

As per the CPM matrix table (refer to Appendix, Table No: 3), Amazon scores high than eBay
Inc. in brand value, market share, revenue and online presence, whereas eBay Inc. is pioneering
in the field of product base and customer retention. It is evident due to the fact that eBay Inc. not
only provides a marketplace for goods but also provides a platform for sharing Advertisements,
classifieds and apartment listings. The customer retention score is also higher for eBay Inc.
because they incorporate online payments systems for the convenience of retailers and
consumers (Jurevicius, 2014a).

2.4 External Factor Evaluation Matrix (EFEM)

As shown in the EFE Matrix (refer to Appendix, Table No: 4), it is evident that eBay Inc. has
been facing external challenges in online retailing in the form of competition and exchange rate
fluctuations as the scores are high in those regards. At the same time, opportunities are prevailing
as they are planning to raise their products and services base to a further level through
acquisitions. A higher weightage to the online retailers is mainly due to the fact that eBay Inc.
along with selling and purchase of goods and services simultaneously provides the online
financial assistance, which enables the retailers to acquire credit or make payments conveniently
(Monea, 2009).

3.0 Internal Audit

3.1 Strengths and Weaknesses

eBay Inc. has its online market places in the US and across 37 countries in the world with 110
million active users. It lists a million of items varying from clothing, accessories, electronics,
computers, antiques, jewellery to rental apartments and travelling tickets. Their own system of
online payment Paypal and brand reputation across the world are counted as the major strengths
of eBay Inc. (Jurevicius, 2014c).

The business management of eBay Inc. has some serious short comings due to which it has been
losing some of their market share to other trending online retailers. They charge higher fees for
listing and selling and they are unsure about their future business strategy for growth (Jurevicius,
2014c).
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3.2 Financial Ratio Analysis

The financial ratio analysis evaluates the financial performance of a company by using the values
from the balance sheet and income statement of the company (Zavadskas, Turskis and
Tamosaitiene, 2011).

3.2.1 Liquidity Ratio

Current Ratio (CR):

CR = Current Asset/ Current Liability

eBay Inc. has Current Ratio of 1.69 which means that firm is financially solvent and are able to
convert their products into cash and repay their obligations.

Quick Ratio (QR):

QR = Current Asset-Inventory/ Current Liabilities.

QR value is same as that of CR for eBay Inc. as they have no inventory which shows the high
liquidity position of the company (Adrian and Shin, 2010).

3.2.2 Profitability Ratio

Gross Profit Margin (GPM) and Net Profit Margin (NPM):

GPM = Earnings before Interest and Taxes/ Total Operating Revenue

NPM =Net Income/ Total Operating Revenue

GPM is 0.74 which shows that the company has been facing some amount of difficulties in
covering their operating expenses.

NPM is 0.21 that accounts the actual profit of the company out its operating revenues after
deducting the all the expenses like taxes and interest. A higher NPM than GPM denotes the good
financial health of the company in terms of profitability (Drake and FabozziJ, 2010).

3.2.3 Leverage Ratio

Debt to Equity Ratio (DER)
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DER = Total Debt/Total Equity

DER value is 0.406 as the total stockholders equity is more than the total liabilities. The lower
DER indicates that the company is financially well-built and did not depend much on debt that
which means, it followed conservative leverage practices (Elliott, Koëter-Kant and Warr, 2008).

3.3 Internal Factor Evaluation (IFE) Matrix

The IFE matrix (refer to Appendix; Table No 5)shows that eBay Inc. has strong performance in
terms of number of users and its vast range of product and service base which made it a leading
online market place for retailing and other services. However, it needs to concentrate on
formulating business strategy for future growth and reduce their charges for listings (Jurevicius,
2014b).

Conclusion
eBay Inc. which is one of the leading online market place in the world with a vast range of
products and services and also known for its secure online payments systems and distinctive
communication segment. The PESTLE and SWOT analysis shows the company’s external and
internal factors that are leading to fall in its profitability since 2008, whereas the CPM matrix
gives us the idea about the competitive challenges it is facing. The case study about eBay Inc.
also provides a clear outlook of the company’s financial performances mainly in the year 2008,
by evaluating the balance sheet and income statement and then deriving the important financial
quotients of the company.
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Reference List
Adrian, T. and Shin, H. S., 2010. Liquidity and leverage. Journal of financial
intermediation, 19(3), pp. 418-437.

Datta, P., 2011. A preliminary study of ecommerce adoption in developing

countries. Information Systems Journal, 21(1), pp. 3-32.

David, F. R., 2010. Strategic management: Concepts and cases. Upper Saddle River. Prentice
Hall.

Drake, P. P. and Fabozzi, F. J., 2010. Financial ratio analysis. Handbook of Finance.

Elliott, W. B., Koëter-Kant, J. and Warr, R. S., 2008. Market timing and the debt–equity
choice. Journal of Financial Intermediation, 17(2), pp. 175-197

Forbes, 2014. eBay's Growth Remained Healthy, Outlook Is Strong. [Online] Forbes.com.
Available from: <http://www.forbes.com/sites/greatspeculations/2014/01/24/ebays-growth-
remained-healthy-outlook-is-strong/> [Accessed 10 September 2015]

Goyenko, R. Y., Holden, C. W. and Trzcinka, C. A., 2009. Do liquidity measures measure
liquidity? Journal of financial Economics, 92(2), pp. 153-181.

Jurevicius, O., 2014a. Competitive Profile Matrix (CPM). [Online]

Strategicmanagementinsight.com. Available from:
<http://www.strategicmanagementinsight.com/tools/competitive-profile-matrix-cpm.html>
[Accessed 10 September 2015]

Jurevicius, O., 2014b. EFE & IFE Matrices. [Online] Strategicmanagementinsight.com.

Available from: <http://www.strategicmanagementinsight.com/tools/ife-efe-matrix.html>
[Accessed 10 September 2015]

Jurevicius, O., 2014c. SWOT analysis of eBay. [Online] Strategicmanagementinsight.com.

Available from: <http://www.strategicmanagementinsight.com/swot-analyses/ebay-swot-
analysis.html> [Accessed 10 September 2015]
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Kim, H. B., Kim, T. T. and Shin, S. W., 2009. Modeling roles of subjective norms and eTrust in
customers' acceptance of airline B2C eCommerce websites. Tourism management, 30(2), pp.
266-277.

Lawrence, J. E. and Tar, U. A., 2010. Barriers to E-commerce in Developing

Countries. Information, society and justice journal, 3(1), pp. 23-35.

Meier, A., and Stormer, H., 2009. eBusiness & eCommerce: managing the digital value chain.
Berlin. Springer Science & Business Media.

Monea, M., 2009. Financial ratios–reveal how a business is doing? Annals of the University of
Petroşani, Economics, 9(Part II), pp. 137-144.

Mulpuru, S., Harteveldt, H. H. and Roberge, D., 2011. Five retail ecommerce trends to watch in
2011. Reproduction, pp. 1-8.

Serrano-Cinca, C., Fuertes-Callén, Y. and Gutiérrez-Nieto, B., 2010. Internet positioning and
performance of e-tailers: An empirical analysis. Electronic Commerce Research and
Applications, 9(3), pp. 237-248

VanHoose, D., 2011. ECommerce Economics. Taylor & Francis

Wamba, S. F., Lefebvre, L. A., Bendavid, Y. and Lefebvre, É., 2008. Exploring the impact of
RFID technology and the EPC network on mobile B2B eCommerce: A case study in the retail
industry. International Journal of Production Economics, 112(2), pp. 614-629.
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Appendix
Table No 1: eBay Balance Sheet (2008)

(Source: David, 2010)

Table No 2. eBay Income statement (2008)

(Source: David, 2010)

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Table No 3: Consumer Profile Matrix (CPM)

Critical
Success Ebay Inc. Amazon
Factors
Weight Rating Score Weight Rating Score

Brand 0.13 3 0.48 0.15 4 0.60

Value
Market 0..27 3 0.81 0.32 4 1.28
Area
Revenue 0.20 2 .0.40 0.24 4 0.96
Product 0.30 4 1.20 0.20 3 0.60
Base
Customer 0.07 1 0.07 0.02 2 0.04
Retention
Online 0.03 3 0.09 0.07 4 0.28
Presence
Totals 1.00 3.05 3.76
(Source: Jurevicius, 2014a)

Table No 4: External Factor Evaluation Matrix (EFEM)

Key External Factors Weights Rating Score

Opportunities
1.Number of online 0.23 3 0.69
retailers
2.Product expansion 0.15 4 0.60
Threats
1.Data security 0.22 2 0.44
2.Competition 0.30 4 1.2
3.Exchange rate 0.10 2 0.2
fluctuations
Total 1.00 3.13
(Source: Jurevicius, 2014b)
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Table No 5: Internal Factor Evaluation Matrix

Key Internal Factors Weights Rating Score

Strengths
1. Active users 0.23 4 0.92
2.Distribution Channel 0.17 3 0.72
3.Product base 0.25 3 0.75
4. Brand reputation 0.11 3 0.33
Weaknesses
1.High fees 0.19 3 0.57
2. Future potentiality 0.05 3 0.15
Total 1.00 3.44
(Source: Jurevicius, 2014b)