The Online Retail Giants on a Growth Highway

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

Since the evolution of the term in 2005 “Cyber Monday” is gradually becoming another celebration event in the US festive season, after Thanksgiving and Black Friday. All the online retailers in the US plan extensively for this day to post their best numbers in sales. The table below shows how “Cyber-Monday” has unfolded over the years. 

Year

% Change in Online Sales

2007

~21%

2008

~15%

2009

~5%

2010

~16%

2011

~22%

2012

~30%

Source: comScore, Inc

This year's online sales saw an increase of ~30% as compared to last year, beating all previous records. The online retailers have got all the reasons to rejoice this season with their sales figures reaching new highs. Amazon.com and ebay were among the top gainers in this year's Cyber-Monday sales.

Amazon.com, the largest online retailer saw its busiest shopping day of the year on Cyber-Monday. The company already has a lead among all e-retailers as its sales have increased by ~42% in the first two weeks of this month. Its strategy of reducing the price of its 7-inch Kindle Fire Tablet by $30 to $129 was its best move so far on any Cyber-Monday. As a result, Amazon posted record sales for its Kindle devices in this festive season. Looking at the robust demand for its Kindle devices, I expect its 4Q12 sales to increase by ~45% to 8 million and the company is poised to give a tough fight to Apple and Google in the short run. It has extended its deals and offers even after Monday to attract more customers and gain a higher market share over other e-retailers.

However, things are not so impressive with another e-retailer Best Buy which posted disappointing 3Q13 results. Its earnings fell ~94% to ~$10 million y/y because of a decline of ~4% in sales at its stores which is a major aspect for its retail growth. Its stock performance in last one year has been terrible with negative returns of ~51%. To compensate for its poor performance, it was depending heavily on the festive season. Best Buy offered some of the best offers online on Tablets, Laptops and Desktops. But, it is difficult to say how this festive season would turnaround the scenario for the beleaguered company with better performing competitors around. 

The below mentioned table shows a comparative position of the online retailers – 

Company

Last 1 year's stock returns

Operating Margin (Last 12 Months)

eBay, Inc (NASDAQ: EBAY)

72.00%

21.00%

Amazon.com, Inc. (NASDAQ: AMZN)

25.00%

1.00%

Best Buy Co, Inc. (NYSE: BBY)

-51.34%

5.00%

Source: Yahoo Finance

Talking about eBay, this stock has shown tremendous performance with ~72% returns in the last one year. The company has got a blockbuster start for the festive season with sales up by ~57% after Thanksgiving and Black Friday. The client sales on eBay increased by ~38% in the important five days during the holiday season from last year figures. This was the first time in the last five years that these figures surpassed the client sales figures of Amazon.com.

Along with a rocking performance on Cyber-Monday, there are some other factors which would be beneficial for the company in the future. Let us have a look at them in detail -

PayPal on a Growth Trajectory

PayPal continues to be the company's flagship brand and its revenue grew at ~24% y/y in 3Q12. PayPal recently launched a trio of promotions for the holiday season. It includes 'Price Matching', 'Free Return Shipping', and 'More Time To Pay'. These offers are limited to the holiday season and will increase PayPal's costs in the short term. However, if they gain popularity among customers it will prove immensely helpful to the company in the long run.

To bolster its Offline potential, PayPal entered into a partnership with MoneyGram, a money transfer company. This gives an opportunity to its customers to use funds from their accounts at any MoneyGram location across the globe (284K in 196 countries). The service is expected to start in 2013 in the US targeting at ~60 million grown-ups who yet don't have bank accounts or credit cards.  Under this deal, anyone can transfer funds at any MoneyGram location with just an e-mail or a phone number. This opportunity will be helpful for the company to increase its footprint in the Offline market as well as to enhance its customer reach.

Focus on Mobile Commerce

With the rapidly growing use of Internet enabled mobile devices and shopping apps, Mobile Commerce holds a significant position in the online shopping industry. ebay is in a strong position to leverage this speedy growth in Mobile Commerce. ebay has been a leader in the Mobile Commerce segment with ~100 million apps downloads and mobile listings. The company in its 3Q12 launched a new mobile app 'eBay Now' in San Francisco which offers same day shipping of products from various local stores such as Target, Walgreens and Macy's. It can also expand this service into other cities in future. I expect Mobile Commerce to increase eBay’s targeted market by as much as ~15 times in the next ten years.

To wrap up, the online retail industry is in a flourishing stage and the e-retailers are positioned for a stable growth in the future. Both Amazon.com and eBay have seen a great third quarter results and an amazing holiday shopping season. This would enhance their earnings in the fourth quarter thereby leading to a stable 2012. I would recommend a buy for both Amazon.com and eBay.


ShwetaDubey has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com and Best Buy. Motley Fool newsletter services recommend Amazon.com, Best Buy, 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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