Amazon and Ebay to Netflix and Groupon: Your're Next!
Jonathan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Both Amazon (NASDAQ: AMZN) and eBay (NASDAQ: EBAY) are investing heavily in same-day delivery service operations, which will do to Nextflix (NASDAQ: NFLX) what it did to Blockbuster (now owned by Dish Network (NASDAQ: DISH); and to Groupon (NASDAQ: GRPN) what the market is presently doing.
About this development, one analyst noted that, "Want same-day delivery on an eBay purchase? It's now possible for San Franciscans placing $25+ orders with certain local stores, courtesy of the eBay Now iOS app. Presumably, more cities and platforms will be added in time. eBay's move is aimed not only at Amazon...but at Groupon, which wants to evolve into a soup-to-nuts local commerce partner. Shopkick may also be a target. A $5/item delivery fee applies to each purchase."
For Amazon, its earnings took a hit last quarter with profits falling by 96% due to the billions spent on warehouses, robotic machinery and other equipment to build out a nation-wide network to facilitate same-day delivery. Delivering movies and television shows on the same day will be a logical progression from the present operations of both ebay and Netflix. When a consumer logs on to Amazon or ebay, it will seem almost natural to order television shows and movies along with the other items. Many will be previously owned and sold at a great discount to what Netflix and Dish Network (through Blockbuster) now charge. Already taking place, this will naturaly increase with same-day delivery.
Groupon and Netflix have no such competitive advantage. Neither does either have any wide economic moat. The future of the industry seems to be one-stop shopping, which is the reason Dish Network acquired Blockbuster. It is also the business model being offered and refined by Amazon and eBay.
This puts Netflix and Groupon having to defend the home turf, which is never where a company wants to be. In terms of having to do this against Amazon and Ebay, the descent of Barnes & Noble, Border's, Best Buy, Radio Shack, and many others is proof of the fate that awaits. While these were primarily brick-and-morter establishments, online competitors have fared little better against eBay and Amazon.
Groupon's decline is testament to that. Hoping to evolve from coupons to a full range of more profitable offerings, it is down 24.81% for the last week and 75.76% for 2012. Overall, Groupon is losing money with a negative profit margin of 10%. While a short float of 5% is considered to be troubling for a company, Groupon's short float of 15.78% offers a good read as to the end result that many are betting for its final chapter.
For Netflix, there has been a 72.31% decline for the last year of market action. The earnings-per-share growth for Netflix is transversing on a very negative trend. On a quarterly basis, earnings-per-share growth is falling by 91.65%. A short float of 28.46% also tells this story well for Netflix, too.
It is interesting that Groupon is attempting to move away from the Internet to prosper while Netflix is moving towards it. Both will meet the one-two combination of the immovable object in eBay for these aspirations in profitably evolving the current business model, which is doubtful based on current returns. It will only get worse in the future. If Amazon introduces a Kindle Smartphone, good luck in finding a Blockbuster or Netflex app on it! Apple has bumped YouTube, owned by Google, from its new mobile operating system, so Groupon and Netflix should not be expected to be treated kindly.
Neither Groupon nor Netflix is any threat in any possible definition of the word to either Amazon or Ebay. Both Ebay and Amazon, however, are moving forcefully into the core revenue function of Groupon and Netflix. It is almost unfair in this regard due to the sheer mass involved. Amazon, which has a market cap of $109.20 billion, can spend billions to move into same-day service and still make money while the market cap for Groupon is just $3.23 billion and for Netflix, only $3.57 billion. The high short floats reflect the result that is expected by the investment community for the share prices of Groupon and Netflix in market action ahead.
Fool blogger Jonathan Yates does not own any of the stocks mentioned in this article. The Motley Fool owns shares of Amazon.com and Netflix. Motley Fool newsletter services recommend Amazon.com, eBay, and Netflix. 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.