eBay's Success in Sponsored Listings: A Dive into Ad Revenue Growth

Seyf Emen

May 4, 2023
5 mins
Auction Based Ads
Marketplace Monetization
Sponsored Listings

Amazon made $38 billion from auction-based ads in 2022, and Walmart turned its ad business into a $2.7bn revenue engine. Alibaba, eBay, Home Depot, Tesco, Kroger and many other businesses around the globe have launched their own ad businesses and are enjoying this high-margin business. Some reveal their ad revenue numbers in the quarterly and annual earnings while the majority still keep their ad revenue a secret. Those who reveal the revenue numbers tell some great stories.

We won’t discuss the benefits of auction-based ads or retail media in this post. You can visit our resources to view many articles covering that. We will take a deep dive into another key player that tells a different story: eBay and its ad business.

eBay and Sponsored Products

Let’s start with how eBay is doing. With a long-standing reputation as a global online marketplace, eBay has successfully connected buyers and sellers worldwide but in 2022, things were not going well for them.

In 2022, eBay reported a net loss of $1.27 billion even though last year it made a net profit of $13.6 billion. In the same year eBay reported a net loss for the first time after 5 years, it also reported a record revenue amount for its first-party advertising business: $979 million. 

In the first quarter of 2023, the revenue from promoted products reached a record $285 million.

eBay’s monetization journey using sponsored products started in 2015 and the eCommerce platform consistently mentioned the “focused on its growth opportunities in Advertising” while using “sponsored products” and “first-party advertising” interchangeably to describe it.

For eBay, sponsored products were the perfect tool for capitalizing on their rich customer data to deliver highly targeted and relevant ads. This not only generates additional revenue through advertising sales but also enhances the user experience by presenting eBay shoppers with personalized product suggestions. Auction-based ad platforms foster strong collaborations between the marketplace and brands, offering valuable marketing opportunities for sellers and creating a more efficient shopping experience for consumers. Ultimately, this symbiotic relationship drives sales, boosts customer satisfaction, and strengthens the marketplace's competitive edge in the eCommerce landscape.

However, the plot of this journey slightly changed for eBay in recent years. Advertising had a way different trend than the rest of their business.

eBay’s first-party advertising revenue consistently grew even when the GMV decreased. Initially boosting eBay’s profits, the $979 million revenue from this high-margin business in 2022 put on a new role: offsetting the eCommerce giant’s losses. 

eBay's Approach to Sponsored Listings:

Sponsored listings, or first-party ads, enable sellers to promote their products more effectively on eBay's platform. A visit to eBay category or search result pages shows how generously Sponsored Products are used.

An essential aspect of eBay's approach to sponsored listings is its focus on relevance. eBay prioritizes showing ads that are closely related to buyers' searches to ensure a seamless browsing experience. This relevance-based ad delivery creates a win-win situation for both eBay and its users: sellers benefit from increased exposure, while buyers can quickly find what they are looking for.

Knowing the importance of sponsored products, eBay kept improving its offerings:

In 2021, eBay Ads introduced Automated Promoted Listings Campaigns, to help sellers easily promote their products. In the same year, eBay launched Promoted Listings Advanced and Promoted Listings Express expanding their ad portfolio.

In 2022, eBay added one-click campaign creation solution titled “Quick Setup” to their “Promoted Listings Advanced” users. Also, in 2022, they launched new tools to allow sellers to delegate their campaign management to agencies. 

In the 2022 Q4 earnings call, eBay CEO Jamie Iannone shared their vision for eBay’s ad business which adds up to 1.6% of their GMV

“We have line of sight to 3%, which we still feel great about. If you look at the performance, promoted listing standard continues to be the workhorse of the product, and we're continuing to drive additional penetration there, hitting 2 million sellers and 700 million listings,” Iannone said. “But we're also excited by our new products.”

Ad Revenue vs. GMV and Revenue Trends:

Analyzing eBay's financial data between 2019 and 2022 offers valuable insights into the success of its sponsored listings strategy. In this period, eBay has demonstrated remarkable growth in its first-party ads revenue, with a steady upward trend year over year. For instance, ad revenue increased from $65 million in Q1 2019 to $276 million in Q4 2022, showcasing a substantial growth in this revenue stream. First-party ads were 1.5% of the eBay GMV in 2022.

However, when comparing this growth with GMV and total revenue trends, we observe a contrasting picture. While ad revenue experienced consistent growth, GMV and revenue growth rates appear to have slowed down. For instance, GMV peaked at $27.5 billion in Q1 2021 but dropped to $18.2 billion in Q4 2022. Similarly, revenue reached a high of $3.0 billion in Q1 2021 and then declined to $2.5 billion in Q4 2022.

This divergence in trends might be attributed to several factors. One possibility is that sellers have increasingly adopted sponsored listings as an essential tool for visibility on eBay's platform, leading to higher ad spending. We know this from the adoption of the ads by eBay sellers. The number of sellers using sponsored products jumped from 400,000 in 2018 Q3 to more than 2 million sellers in 2022 Q4.

Another possibility is the changes in the advertising sector that shifted ad dollars from Search and Social Media marketing to more effective channels like retail media. The death of cookies is likely another reason for sellers to shift their ad spend to channels with 1st-party data. 

However, this spending might not necessarily translate to a proportional increase in GMV or revenue due to market competition and external economic factors.

The Future of eBay’s Sponsored Listings

eBay's sponsored listings have proven to be a successful venture for the company, as evidenced by the steady growth in first-party ad revenue even though GMV and overall revenue growth appear to have slowed down in recent years.

eBay's focus on growing its ad business won’t seem to slow down. Going forward, it will be interesting to see how eBay continues to evolve and adapt its strategies to ensure sustained growth and success in the increasingly competitive online marketplace.

What we see in eBay’s case is that ads not only can help you boost your revenues, but they can also offset your losses and keep the business running during uncertain times.

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