This E-Commerce Stock Is Pressured By Europe
Vladimir is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The slowdown in Europe has put pressure on eBay (NASDAQ: EBAY). The e-commerce giant has recently issued earnings that came in-line with expectations, but provided a soft guidance. The shares were punished on the day of the report. This year has not been successful for eBay shareholders, as the stock is up only 2%. The stock has been trading in a tight range since the beginning of the year. Will this situation change?
eBay posted an enabled commerce volume growth of 21% compared to the same period of the previous year. If compared to the previous quarter, the growth was 3.7%, which might not look like an impressive figure. However, if we look at 2012, the second quarter enabled commerce volume grew only 1.8% compared to the first quarter of 2012. It was the fourth quarter, which is the strongest quarter for commerce that set up the real growth.
It’s worth noticing that revenue grew at lower rates, scoring a 14% growth compared to the same period of 2012. eBay stated that a large number of new customers are younger. In addition, they are from emerging countries. This is a way to say they have less money, hence the difference in growth rates.
eBay is blaming the macroeconomic situation. Because of this, the company has stated that it would likely to finish the year at the lower end of its guidance. Literally everyone is blaming Europe this earnings season. While reading through numerous earnings reports, I noticed that companies from different industries do not expect this situation to change in the near term. This means eBay could struggle with growth.
Areas of growth
Shareholders of Overstock.com (NASDAQ: OSTK) cannot complain about the lack of growth. The stock is up 129% this year. The company has shown tremendous momentum on its latest earnings report. Revenue increased 22% compared to the same period a year ago. More importantly, net income rose a mind-blowing 687%. Gross margin improved by 177 basis points at 19.7%. No wonder that the stock was rallying.
One could argue that the shares, which are trading at 25 forward P/E, have gotten ahead of themselves. However, if we look at another player in the e-commerce field, Amazon.com (NASDAQ: AMZN), which is trading at 96 time forward earnings, we can see that the market is ready to pay for growth prospects.
Amazon is having a decent year--its shares are up 22%. E-commerce optimizer ChannelAdvisor has recently reported that same-store sales for clients relying on Amazon rose 30.6% year-over-year in June. eBay clients have had 17.7% same-store growth. Amazon shares responded to that news.
In addition to e-commerce, Amazon is active in the cloud field with its Amazon Web Services. Amazon follows an aggressive pricing strategy while competing with the likes of Microsoft, Google and Rackspace. The company has recently cut the prices of dedicated instances on its EC2 cloud computing platform by up to 80%. The market seems to like such moves, but Amazon will soon be tested when it provides its quarterly report.
What’s next for eBay?
As the stock market is growing, investors are more focused on growth prospects than on valuation. eBay is trading at a 16.15 forward P/E, cheaper than Overstock and much cheaper than Amazon, but I think it will not help in the near term. Analysts’ mean target price for eBay is 64.08, which I consider overoptimistic.
eBay must find a way to show better dynamics on both Marketplaces and PayPal fronts. The company states that it expects modest revenue acceleration in the second half of the year. Modest is not the word that investors are demanding right now.
eBay is likely to continue trading in the range where it has been since the beginning of this year. The company lacks growth catalysts. At the same time, no disaster happened, so you can expect the stock to move back and forth. If you are interested in growth, turn your eyes to Overstock and Amazon. Both stocks are risky, so you will probably want to see a pullback to get a safer entry.
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Vladimir Zernov 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!