A Better Growth Play Than Amazon

Dan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

With its massive growth and market-share-stealing prowess, Amazon.com (NASDAQ: AMZN) looks like an appealing investment. But over each company's time on the market, a similar stock has outperformed the internet retailer's share-price gains. It's also shown shown more consistency than Amazon on its annual top and bottom lines -- and this rival might even have more growth potential going forward.

A quick look at the scorecard

If you guessed that we're talking about eBay (NASDAQ: EBAY), give yourself a pat on the back. Let's first compare eBay to Amazon by looking at some important key metrics. 

Forward P/E:

  • eBay: 17
  • Amazon: 103

Net Margin:

  • eBay: 17.73%
  • Amazon: -0.15%

While Amazon trades at a far greater premium, eBay clearly makes more profit per dollar invested. With Amazon’s impressive top-line growth, investors don’t seem to care much at the moment. However, this could become a dangerous game for the online retail giant; investors may search for safety in highly-profitable companies if the market turns south.


  • eBay: 13%
  • Amazon: -1%

ROE refers to Return on Equity, which indicates how much of your invested money the company turns into profit. As you can see from the numbers above, eBay is doing more with investor money than Amazon.

Short Position:

  • eBay: 1.20%
  • Amazon: 2%

Neither short position is high, which is often a good sign. If shorts don’t want to go near a stock, it means they believe upside potential outweighs downside risk.

Debt-to-Equity Ratio:

  • eBay: 0.21
  • Amazon: 0.35

Both companies have showed quality debt management. This will allow eBay and Amazon to fund innovations and acquisitions going forward, spurring their future growth. 

3-Year Stock Performance: 

  • eBay: +152.5%
  • Amazon: +133.6%

Those performances might surprise some people, since eBay has flown under most investors' radar over the past few years. Note also that while eBay has been profitable over the last five years and five quarters, Amazon reported a loss in 2012, as well as losses in two of the last five quarters. 

Future potential

With a market cap of $135 billion, Amazon receives a lot more attention than eBay, which sports a market cap around $69 billion.

Amazon has branched out into many different areas, including streaming video, e-readers, and cloud storage services (in addition to online retailing). But eBay's future potential is just as impressive.

eBay-owned payment service PayPal has booked several important partnerships with Discover. The first let Discover process consumers' mobile payments on PayPal's behalf. Earlier this year, Discover made another, aggressively expansive deal with 50 merchant processors, which will make PayPal a payment option in approximately 2 million retail stores by the end of 2013.

If PayPal is being accepted by more merchants, then other merchants will likely want to jump on board. The PayPal payment-option trend is still in its early stages, and with most young consumers being familiar with the brand, its growth potential is excellent.

According to eMarketer, 88% of PayPal customers are under age 55, versus 74% of non-PayPal customers. PayPal also saw revenue increase 20% to $1.6 billion in the second quarter year-over-year. And PayPal added 4.7 million users, now giving it a total of 132 million users worldwide.  

Investors seeking an alternative to Amazon might also consider Overstock.com (NASDAQ: OSTK). Unlike Amazon and eBay, Overstock has opted not to branch out and has remained focused on its core business. This could end up paying dividends down the road. Overstock offers free shipping, rewards for loyal shoppers, and big discounts. In regards to the latter, it will now sell books at least 10% cheaper than books found on Amazon.com. And like Amazon, Overstock is also well-known for its quality customer service.

Overstock’s revenue skyrocketed 22% in the second quarter year-over-year, and diluted EPS went to $0.15 from $0.02. But with a market cap of just $712 million, Overstock doesn't have deep enough pockets to steal much market share from eBay and Amazon. On the other hand, if the stock suffers at some point and the price becomes cheaper, don't be shocked if one of the bigger players offers to scoop it up. 


Amazon and Overstock are both well-managed companies with strong growth potential. However, Amazon is very expensive at the moment, and Overstock is not big enough to withstand a steep broad market correction if one were to occur.

While eBay won't protect you from downside market corrections, its upside potential is high thanks to its consistent growth in all segments, including steadily increasing exposure and brand recognition for PayPal. If you choose to invest in eBay, consider doing so with incremental purchases as a way to protect against downside market moves.

Dan Moskowitz 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!

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