Why eBay Might be a Better Bet Than Amazon
Anjali is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
eBay (NASDAQ: EBAY) and Amazon (NASDAQ: AMZN) have been competing with each other to acquire the ecommerce marketplace for quite some time now. While Amazon has always been an investor’s darling, eBay has received a much lesser acclaim for its business. As a result, Amazon is trading at a hefty PE of 104.3 while eBay has lost with a measly PE of 17. As eBay is trying to strengthen its fixed price business, generate higher revenues in the PayPal segment with its recent partnership with Discover and is growing its focus on customer satisfaction by providing fee shipping services, I rate it as a buy.
Amazon was previously deemed better than eBay as it favored fixed priced goods relative to the auction based business model for eBay, which the investors have failed to relate with. But now as eBay has started focusing more towards its fixed price business, I believe that investors need to keep a close watch as it has started to minimize those concerns. According to the recent SSS data provided by Channel analytics, eBay has been growing its fixed price business at a rapid rate as it rose ~33% YoY in July while the auction business has been on a decline as it has shown negative YoY results for the past 7 months. I believe that as the past concerns are yielded redundant by the current changes in eBay’s business model, eBay will begin to trade at a much higher valuation.
According to a survey by ComScore, free shipping is the most valued feature that customers want while shopping online. Amazon has been a front runner in this area with its Amazon prime offering through which it provides free shipping to its users at a minimal subscription cost. Now eBay has also started its own FNF (Fast and Free) program through which it provides sellers with the functionality to track their goods at all times while providing estimation of the delivery date to the consumers. eBay has continuously been working to provide its sellers with even more functionality once this program gathers more traction and more data feed points to work with. I believe that with this offering eBay can generate high business through its marketplace and offer significant competition to Amazon going forward.
Further, I am becoming increasingly positive towards the future prospects of eBay’s PayPal with its recently announced partnership with Discover (NYSE: DFS). PayPal will gain access to more than 7 million offline merchants through this partnership, which could result in incremental revenues going into 2013. I believe that eBay can pose a significant threat to Amazon as it is continuously working towards the betterment of its offerings to generate consumer satisfaction. With Amazon’s 1P business posing a continuous risk to its high valuation due to low gross margins, I believe that eBay is a much better and risk adjusted play in the ecommerce market and therefore rate eBay as a buy.
AnjaliPaliwal has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com. Motley Fool newsletter services recommend Amazon.com and eBay. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.