Swim In The Bay Or Dive In The River - Evergreen Investments
tarun is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There are a few sectors where growth never seems to stop, and e-commerce is one of them. It has changed the course of how people shop and has witnessed tremendous growth over the last decade. Let’s see how well the two titans of e-commerce, Amazon (NASDAQ: AMZN) and eBay (NASDAQ: EBAY), are expected to do this year.
Amazing year and promising future
eBay’s third-quarter revenue of $4 billion was 18% higher than last year, in line with consensus estimates. It reported earnings of $751 million, or $0.57 per share, compared to last year’s $1.98 billion, or $1.51 per share
There has been tremendous improvement in the company’s entire portfolio of businesses and especially mobile transaction volumes, which were up this year and drove revenue north. eBay has an early mover advantage and is making rapid progress in its mobile business with 206 million users, which is 35% more than Amazon’s 152 million.
In the last year eBay mobile and PayPal have witnessed amazing growth in volume, up more than 100% and 250%, respectively. PayPal processed payments worth $14 billion last year, out of which only 10% of transactions were through mobile devices, which clearly shows that there is a lot of scope for eBay to expand its mobile business.
PayPal’s recent partnership with NCR Corp (NYSE: NCR) gives it a major expansion opportunity into the physical world via ATMs. NCR is not a household brand but it builds the self-checkout machines used at the grocery store and designs the technology used within bank ATMs. The eBay/NCR deal will make PayPal accessible in 38% of major restaurant chains, and 50% of major retail chains, thereby adding to the company’s revenue stream.
The partnership of both companies will also allow customers to buy gas and food at gas stations and convenience stores on their smartphone. PayPal, in conjunction with NCR, is trying an app where consumers can pre-order food with their smartphone, and is also trying to create apps where they can pay their bills without waiting for checks. Jet speed apps and innovations like this should succeed in the future, thereby adding to both the companies growth.
Moreover, NCR is currently focusing more on the retail sector to drive its own growth. It has recently unveiled some new solutions along with more advanced versions of its existing products. The company's products such as NCR Silver, StopLift Checkout Vision Systems, Netkey Endless Aisle kiosk application, and Pulse should make customers happy by saving them time while shopping and checking out. NCR's innovative technology should attract more customers to retail outlets and help the company stay ahead of its peers.
The industry veteran
Amazon has always come up with innovative ideas and better ways of doing things, which have been followed by others in the industry. It has always taken challenges upfront, be it building warehouses all over the country or experimenting with same day delivery option, or any other strategic moves. These innovations have no doubt affected margins, but they have also helped the company build up a long-term income generating option.
With respect to Amazon’s outlook, I believe that the company is running out of products to launch. Moreover, its online operations are suffering because of retail giants such as Wal-Mart, Target, and Best Buy, who have increased their online operations. Amazon has a dominant position in the domestic market, but its international business is facing a lot competition as the Chinese market is dominated by Alibaba, and the European economy is still not in the best of health.
Amazon's recent business lines such as the Kindle tablet and its Prime Instant Video are costly ventures operating at almost zero margins with uncertain future and stiff competition.
eBay, with its amazing growth prospects, looks insanely cheap with a P/E of 18.5 times, while Amazon and Overstock are trading at P/E’s of over 3200 and 140, respectively. eBay’s revenue and earnings have grown in a stable way, both quarterly and annually. The company has a strong balance sheet and cash flow generating capacity from its operating activities, with a cash balance of $9.14 billion.
Also, eBay has a very low debt-equity ratio of 0.23 in comparison to Amazon and Overstock’s ratios of 0.35 and 0.80, respectively. The company has the best margins over a longer time frame and has the capacity to outperform the market yet again.
eBay is a very strong company with a lot of growth left in it. Its mobile business and PayPal’s recent developments with NCR have long-term growth and revenue generating capacity. PayPal’s dominant position in mobile will help it take advantage of the worldwide mobile purchase volume that is expected to reach $1 trillion in the next five years (as predicted by International Data Corporation).
Investing in eBay means investing in a bright future. Amazon is a great company which has kept on delivering and raised investors’ expectations from it. The outcomes of Amazon’s businesses are not yet certain. Keeping this in mind, eBay looks better positioned from an investment standpoint than Amazon.
tarunbachhawat 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!