Why This E-Commerce Site Is on the Rise
Ben 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eBay (NASDAQ: EBAY) originally made a name for itself by facilitating online auctions and sales between users. Now, eBay has expanded its online platforms, tools, and services for the benefit of online merchants and individuals. With the increasing prevalence of e-commerce, the company must continue innovating to sustain its growth.
Last quarter, eBay saw revenue rise 14% to $3.9 billion, and earnings per share increase 12% to $0.63. E-commerce volume grew by 21%, making it eBay’s fastest-growing section. These increases come from the double-digit growth that eBay and PayPal had during the second quarter.
Mobile commerce added 3 million customers to the company last quarter, and eBay and PayPal are each expected to have $20 billion in mobile commerce and payment volume by the end of 2013. The eBay mobile app allows customers to buy and sell items from their mobile device, and the company partners with other businesses, which allows the mobile platform to be used for ordering items that span from clothing to lunch. With the increasing popularity of smart phones and e-commerce, this area has a lot of growth potential for eBay.
Recently, eBay revealed that it is expanding its same-day delivery service for buyers and sellers who are in the same market. In the past year, the company has tested the service in San Francisco, San Jose, and New York. The expansion is planned to take place in Brooklyn, Queens, Chicago, and Dallas throughout the summer. To be eligible for the service, customers must make orders of at least $25 and pay a $5 fee. The extra cost will allow customers to receive items from eBay partners such as Target and Best Buy in as little as an hour. But whether people are willing to pay extra for super speedy deliveries still remains to be seen.
With these improvements and growth of the mobile market, eBay expects that it can increase the commerce it enables from $175 billion in 2012 to $300 billion by 2013. The company takes a percentage of the commerce it enables and will see earnings rise with it.
Much like eBay, Amazon is attempting to succeed in same-day shipping with AmazonFresh. The service offers quick delivery of groceries and other Amazon items like electronics and books. AmazonFresh started in Seattle and expanded to Los Angeles this past June.
Overstock is an online retailer that offers discount, brand-name, and non-brand name products. Recently, the company had a successful second quarter with revenue up 22% to $293.2 million. It’s a smaller company than Amazon and eBay, but the market is expecting growth from the company as evident from the company trading at 27.57 times forward earnings.
Of these three companies, eBay is currently the cheapest with a forward P/E and PEG of 16.31 and 1.24, respectively. Overstock has its P/E of 27.57 and a peg of 1.40 and Amazon has a large P/E and PEG of 94.56 and 6.25. Amazon's ratios are closer to companies that offer instant video streaming like Netflix.
eBay has competitively high gross and operating margins of 69% and 21%, respectively. Compared to Amazon’s margins of 25% and 1% and Overstock’s 22% and 2%, it’s clear that eBay’s business retains more of its sales than its competitors do.
eBay is primed to take advantage of the growing mobile market. The company is making it easier for consumers to purchase and receive the products they order online. With the expected increase in enabled commerce and the company’s impressive margins, I see eBay stock going up as the company’s image shifts from online auctioning to an online business facilitator.
Ben Popkin has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and eBay. The Motley Fool owns shares of 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!