E-Commerce Should Provide You a Safe Bay Across Amazon
vrinda is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It was never expected that online shopping would grow at the pace it has grown. People assumed that without a physical market and without actual visual display of the products, purchase would hardly be possible. Security of transactions made through credit cards was another concern. Amazon (NASDAQ: AMZN) and eBay (NASDAQ: EBAY), however, became better than the expectations of the market. They have grown at an amazing pace. Let us just take a look to see if there is growth still left for these e-commerce giants.
eBay’s most recent quarter earnings were slightly better than the analyst’s estimates. Revenue surged 18% compared to the same quarter last year, as eBay’s entire business portfolio performed better than the same period last year. The company’s core business generated revenue of $2 billion; as gross merchandise volume grew to $19.1 billion, delivering a growth of 16% year-over-year.
Though the company’s entire portfolio has performed well, its mobile business has grown beyond expectations. Phenomenal mobile usage helped the company to generate $13 billion in mobile commerce volume bettering the expected $10 billion. Moreover, eBay is a market leader in its mobile business with 206 million users while its competitor Amazon has 152 million users. CEO John Donahoe’s statement “that mobile users of eBay are more likely to transact,” makes complete sense as people using eBay or PayPal on mobile will do so in order to make a purchase or payment compared to desktop users, who might just be going through deals while sitting on their computers.
PayPal has seen tremendous growth, with revenue increasing 24% year-on-year to $1.5 billion, as the increased payment volume now stands over $41 billion in transactions. The company is expanding its newly launched in-store payments platform to a number of retailers like Home Depot, Abercrombie & Fitch, and J.C. Penney. Moreover, Discover and PayPal’s partnership which is scheduled to start in 2013’s second quarter should help PayPal offer its offline payment to millions of merchants in the U.S. and international market.
PayPal and NCR Corp’s deal will enable customers to pay their bills at restaurants using a smartphone. The mobile payment option will further integrate in NCR’s Convenience-Go (C-Go) app for gas stations and convenience stores increasing further scope of generating revenue for PayPal. PayPal’s “Bill me Later” allows customers to checkout and pays their bills later through this product. This product appears to be a great addition to the company as, in its third quarter 2012; it generated a payment volume of $775 million.
Is the Amazon still perennial?
The market leader in e-commerce and a veteran company, Amazon did not perform to expectations last year. But the investor’s sheer optimism helped its share price to appreciate by about 50% YTD and is currently trading at $268. Amazon has always surprised investors with innovative business products that would beat market expectations again and again, but this journey now seems to be on a slowdown. The company’s profit margins have reduced not only because of heavy investments in Brazil, Japan, Germany, and United Kingdom, but also because its new business line - hardware tablets, kindle, and online video, Prime Instant Video - is operating at very low margins. In its core business, e-commerce, the company is facing stringent competition from retail giants like Wal-Mart and Target, which is reducing its margin and market dominance. Amazon, without doubt, is a superb company, but if its current valuation is to be true, it needs a consistent 50% growth or 7% net margin going forward which does not seem realistic to me.
Overstock (NASDAQ: OSTK) is another player in the market, though very small compared to its peer, currently trading at $14.73 with a market cap of $345.37 million. Overstock has entered into a partnership with Rewards Network which will enable its members to earn reward points under its Club O Rewards loyalty program. This partnership adds Overstock to Rewards Network’s millions of members which should help its revenue in the future.
Overstock has seen 7.8% revenue growth over the last five years, which is amazing, but it is not trading cheap at its current P/E of over 140. Moreover, the stock price is still around its IPO price which has caused investor resentment against the management. Further, it has very low margins and a high debt burden in its balance-sheet. Though online discount retailers have a bright future ahead, Overstock does not seem to fall in that league.
Foolish final thought
There seems to be a major shift from desktop to mobile internet usage which has provided opportunities for e-retailers to increase their business. eBay is the best place at the moment with its mobile business already in boom and its future prospects looking amazing. I am completely bullish on eBay to provide good returns to its investors. I might sound like the only bear in the market when I say Amazon might not be able to deliver according to the market’s expectations from it. Amazon is a very good company, but I feel it is not growing as it did in the past and its share prices are likely to see a downtrend. As for Overstock, it will survive either on its own or by being a good takeover target.
vrindakedia 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!