The New FACE of E-Commerce
Somnath is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
FACEBOOKing the holidays
The holiday season is quickly approaching. From Halloween to New Year’s Day, consumers will spend billions of dollars on gifts. While shopping is not a difficult task for many Americans, Facebook Inc (NASDAQ: FB) is seeking to make the process a bit easier.
Facebook has long noted consumers’ friends’ birthdays, anniversaries and other notable personal dates in the top-right corner of the home page under the heading “Birthdays and life events.” Now the social network has added a link under notes such as “Remo Fernandes is 25 today” that says “Give him a gift.” Consumers also see that link when they view the pages of their friends who are having a birthday.
The service will enable users to send gifts to each other, either privately or publicly. The user who receives the gift will be able to change its color and other characteristics before it is shipped. Facebook will share the revenue from this activity with partners that participate in the program. The service is currently offered to only a small amount of users, but will expand in the United States over the coming months.
People send birthday presents anyway -- what's an easier way to send a gift than when one is reminded of someone's birthday on Facebook? Since gifts are about socializing anyway, Facebook is a natural. What Amazon is to shopping, Facebook is to socializing. Thus, the idea of sending a birthday present or any other type of gift via a social platform will be as natural to Facebook as buying a book is to Amazon.
Facebook also had an unsuccessful gift-giving business several years back, but many of the gifts were virtual goods and social games.
The roadblocks in front of Facebook could keep its e-commerce business from being successful:
- Facebook faces a ton of competition, especially from Amazon and eBay. Those brands have had year to build credibility, attract vendors and perfect their business models.
- People don't see Facebook as a place to shop. When people go to Facebook, the last thing on their minds is shopping. Facebook is all about socializing, making friends and, yes, finding that significant other. But the last thing someone wants to do is go shopping when he or she is on Facebook.
- Facebook is charging a fee to shop. That's the "deadly concern”. Facebook is a nominal source of sales right now. Actually social network links are not really effective for e-commerce.
With a P/E of 121.87 and EPS of 0.18 the Facebook stocks are currently trading at $21.83 down 1.98%.
The Big Brother
Amazon.com, Inc. (NASDAQ: AMZN) is a totally different platform. A person visits Amazon specifically to shop, they dont visit it to socialize with friends and surely you are not looking for that significant other. And not only do they go to Amazon for the sole purpose of buying something, but most of the time they know what they want to buy and simply go there to make the purchase. Amazon to online sales is as natural as honey is to a bee. For a company like Facebook, which has no experience in the online shopping space, getting a share of this market will not be easy.
Amazon.com announced that for the third quarter of 2012, it expects net sales to be between $12.9 billion and $14.3 billion, or to grow between 19% and 31% compared with third quarter 2011. Operating income (loss) is expected to be between $(350) million and $(50) million. This guidance includes approximately $275 million for stock-based compensation and amortization of intangible assets, and it assumes, among other things, that no additional business acquisitions, investments, or legal settlements are concluded and that there are no further revisions to stock-based compensation estimates. According to I/B/E/S Estimates, analysts on an average were expecting the Company to report revenues of $14.1 billion and operating income of $164 million for the third quarter of 2012.
With a P/E of 312.99 and EPS of 0.82 the Amazon stocks are currently trading at $255.92 up 2.12%.
The other competitor
eBay Inc (NASDAQ: EBAY) is another heavyweight in e-commerce platform. The Company enables commerce through three reportable segments: Marketplaces, Payments and GSI Commerce (GSI). These segments provide online platform, services and tools to help individuals and small, medium and large merchants globally to establish online and mobile commerce and payments. In addition, through X.commerce, it has created an open source platform, which provides software developers and merchants access to its applications programming interfaces (APIs), to develop software and solutions for commerce. As of December 31, 2011, it had more than 100 million active users transacting on its sites, millions of merchants using one or more of its platforms, and a developer community with more than 800,000 members using its APIs.
In July, eBay Inc announced that it is updating its third quarter 2012 and fiscal 2012 earnings per diluted share guidance to account for the expected impact of its $3 billion debt offering, which priced earlier on July 19, 2012. According to I/B/E/S Estimates, analysts on an average were expecting the Company to report revenue of $3.399 billion for the third quarter of 2012 and revenue of $14.002 billion for fiscal 2012.
With a P/E of 17.04 and EPS of 2.85 the eBay stocks are currently trading at $48.59 up 0.39%.
The verdict
Retail sales over the holidays are expected to grow just 4.1% this year, the lowest level since the U.S. was coming out of the recession in 2009, according to the National Retail Federation. Last year, seasonal sales rose 5.6%. While it is still unknown how reliable the service will be or if Facebook will succeed in a market dominated by Amazon and eBay, the feature is very interesting and could be Facebook’s first major step in generating a significant amount of additional revenue in the long-term and shoot its stock in future.
SomnathGuha has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com and Facebook and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Amazon.com, eBay, and Facebook. 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.
