Brian Gaynor: What's the net worth?

Sam Morgan and Trade Me, the New Zealand online auction site, are generating a huge amount of media attention and creating problems for many consumer-orientated companies.

The internet company was in the news recently over the alleged $7000 plus paid for the last cigarette smoked in an Auckland bar before the anti-smoking laws came into effect. Only a one-year-old would believe this tale but it generated considerable publicity for the site, which doesn't advertise.

At the same time, Dunbar Sloane, the art auctioneer, announced he was laying off staff because of increased competition from online businesses and there was a great deal of talk about Trade Me at Turners Auctions' annual meeting.

Sloane said: "The auction houses and antique dealers overseas are suffering a little bit from eBay. People are listing and selling stuff completely themselves, bypassing the auctioneer and the antique dealer."

He said the digital camera was playing a role in the switch to online trading because individuals were able to photograph items they were selling and post them on the net for a minimal cost.

Trade Me, which was founded by Morgan in 1999, is on a phenomenal growth path. There are up to 50,000 potential buyers and sellers online at any one time and, say Nielsen/NetRatings surveys, it consistently ranks as the second most popular web destination in New Zealand.

In the week ending April 10, xtramsn.co.nz was top with 816,000 visitors, trademe.co.nz was next with 558,000, xtra.co.nz had 230,000 and nzherald.co.nz was in fourth with 181,000 visitors.

At the time of writing, there are in excess of 350,000 items for sale online with womenswear being the largest sub-group with 32,600 individual items. Cars are next with 21,300 items followed by 13,800 non-fiction books and 11,800 car parts.

The proliferation of used cars for sale online was a major topic at the Turners Auctions' meeting.

What a difference a year has made for the car auction company.

At last year's meeting, the atmosphere was extremely positive as the company talked about rising volumes, a new finance company and expansion in North America.

Its share price rose from $4.31 before the meeting to $4.75 a week later.

By contrast this year, its share price slumped from its pre-meeting price of $3.40 to $2.75 two trading days later.

Turners reported unit sales were down 3.7 per cent for the three months to March 31 and auction revenue fell 14 per cent compared with the first three months of the previous year.

Departing chief executive Jeff Wesley was fairly relaxed about the situation claiming that an early Easter had disrupted first-quarter volume and temporary downturns had been experienced in the past.

He said the competition from Trade Me was only in the $5000 or less a car bracket. Wesley, who leaves for Turners & Growers early next month, said he expected internet car sales in excess of $5000 to be minimal.

As a general rule, there aren't many bids on higher-priced vehicles although there is a flurry of activity in this price range from time to time. Nevertheless, the number of listings is increasing as potential sellers are willing to pay $19.95 a vehicle.

Although Turners Auctions' admitted its stock of imported cars was increasing, it believes the outlook is reasonably encouraging as it expects a boost from its new Christchurch Supersite.

Progress in North America is slower than anticipated. The two 50/50 joint ventures in Vancouver, Canada and Seattle/Portland are not getting the traction that was expected.

According to chairman Michael Dosser - who Wesley replaced as CEO at Turners Auctions and is now replacing Dosser again as CEO at Turners & Growers - their joint venture partners are slow to accept New Zealand's higher standards. In the US, their partners have taken time to accept that cars should be cleaned before they are auctioned.

Dosser said the preferred option was for Turners Auctions to own 51 per cent of any joint venture but this might be difficult because it was unlikely the other party would be happy with a 49 per cent stake.

Trade Me is a concern for Turners Auctions because the used car imports division and finance company are not achieving anticipated results. Wesley indicated last year that he expected the group's finance book to be in the $20 million to $25 million range by December 2005. This target has been reduced to between $12 million and $14 million.

Another topic of discussion post-meeting was the exercise of 336,000 options by Wesley at $1.50 each and the sale of the 336,000 ordinary shares two days later at $4.40 each.

A director said the chief executive looked upon the options as a bonus and he sold the ordinary shares to fund the purchase of a beach house. The director took the view that clauses should be inserted in options agreements to ensure that all the shares acquired were not immediately sold (some may have to be sold to fund the purchase of the ordinary shares or meet a tax liability).

Meanwhile, the relentless progress of eBay and other online auction companies shows that there are huge changes to the way we buy and sell certain items.

eBay, which has a sharemarket capitalisation in excess of the total value of the NZX, reported net earnings of US$778 million ($1.07 billion) for the December 2004 year compared with US$442 million for the previous year.

CEO Meg Whitman wrote: "Our strong Q4 results capped off outstanding success throughout the year, with exceptional growth across every part of the business. We have tremendous momentum going into 2005."

Used cars, motorcycles and car parts are eBay's biggest business by far.

In the year ended December 2004, the gross merchandise value of motor vehicles sold on eBay was US$40.3 billion compared with US$26.8 billion in 2003 and just US$14 billion in 2002. Low priced as well as high-priced used vehicles are sold on eBay.

In 2004, consumer electronics were in second place with gross sales of US$10.9 billion, computers were third with US$10.6 billion and clothing and accessories fourth with US$9.4 billion.

There is no limit to the internet's ability to support online auctions.

Back in New Zealand, Trade Me is now listing real estate and there are about 1000 houses, 300 sections and 150 holiday homes listed. The listing fee will be $49.95 but is free now to encourage sellers.

Real estate has not taken off on eBay and there are few bids on Trade Me with the exception of two cheap sections in Ohai, 30 minutes from Invercargill. These two sections attracted interest although the bids were well below the asking price.

What is the potential for online house sales? A few years ago, used cars were a relatively small online item as computers and collectables dominated. There was a widespread view that used cars would never take off because buyers would want to see and drive before they bid.

But there is an increasing level of trust, security and sophistication among online traders that has allowed Trade Me to prosper. This is an important characteristic that should encourage the continuing growth of online auctions.

* Disclosure of interest: Brian Gaynor is an executive director of Milford Asset Management.

Kiwis Online

* 350,000 items were for sale.
* Womenswear was the largest sub-group with 32,600 items.
* Cars were next with 21,300 items.
* 13,800 non-fiction books were for sale.
* As were 11,800 car parts.

Yanks Online

* The gross merchandise value of motor vehicles sold on eBay last year was US$40.3 billion.
* Consumer electronics were in second place with gross sales of US$10.9 billion. Computers were third with US$10.6 billion.
* Clothing and accessories were fourth with US$9.4 billion.