eBay warns US internet sales taxes will slow growth
The imposition of internet sales taxes by state governments across the US is compounding problems for online marketplace eBay, which offered investors a disappointing earnings outlook on Tuesday.
Shares in the group fell by more than 5 per cent in after-hours trading after it said it expected net revenue of $2.55bn-$2.6bn in the first quarter versus Wall Street expectations of $2.64bn, according to Refinitiv.
Thirty-three states — including California, Texas and New York — have now implemented internet sales taxes, closing what some saw as a loophole that allowed online retailers to base themselves in low sales tax states while selling nationwide.
“This rollout happened faster than anticipated and affected small businesses and consumer sellers requiring marketplaces to collect and remit on their behalf,” said Scott Schenkel, eBay’s interim chief executive.
eBay claimed those taxes had hurt US volume growth by approximately six percentage points in the final quarter of 2019, and said it expected to see volume affected for at least the first half of 2020 — although it said it would improve once consumers get more accustomed to the price increase.
Mr Schenkel added that eBay was advocating for a national internet sales tax to alleviate compliance burdens for small businesses.
Overall, eBay’s revenue for the fourth quarter of 2019 fell by about 2 per cent to $2.82bn, marginally above analyst expectations. Net income from continuing operations fell to $558m from $763m in the same period in 2018.
The site’s active user base grew by 2 per cent year-on-year, but remained unchanged on the previous quarter, which was attributed to a cut in its spending on marketing.
eBay is undergoing a review of its portfolio in the face of continued competition from the likes of Amazon and Walmart.
In September, Devin Wenig stepped down as chief executive after four years, blaming disagreements with eBay’s board on strategy. Mr Wenig was understood to have been against the idea of spinning out parts of its business that are not directly related to its core marketplace — an idea being pushed by activist investors in the company. Mr Schenkel stepped into the interim chief executive role from chief financial officer.
eBay subsequently announced in November it had agreed a $4.1bn deal to sell ticket reseller StubHub — which it bought in 2007 for $310m — to London-based Viagogo. The deal is being investigated by the UK Competition and Markets Authority, though eBay said it expected the deal to be completed by the end of the March.
The company also said on Tuesday it would update investors on its plans for selling its Classifieds business later this year.
The group has struggled to court younger consumers, those shoppers who were too young to engage with eBay during its early 2000s heyday, and instead, according to data from Piper Jaffray, are far more likely to turn to Amazon. To combat this, eBay has sought to broaden its appeal by, for instance, dropping seller fees on high-end sneakers. It said it sold 6m sneakers in North America last year.