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Growth Channels Over the Next Years –Becoming a Worldwide Commerce Leader

November 28, 2013 | About:
victorselva

victorselva

3 followers
Two websites are at the top of the purchases made on the Internet. eBay Inc. (EBAY) and Amazon.com Inc. (AMZN) are two websites where you can buy and sell the products you want. The difference between them is that Amazon is more specialized in books, CDs and DVDs, while eBay specializes in digital technology.

A Major E-Commerce Player

eBayprovides online platforms, tools, and services , helping in online and mobile commerce and payments in the U.S. and internationally. It owns one of the world's most popular e-commerce destinations, which bears its name, as well as PayPal. It is organized into three businesses: marketplaces, payment and enterprise. Revenues in 2012 were: 52% came from marketplaces, 40% from payment, and 8% from enterprise. In the last quarter the company recorded earnings that were above the Zacks estimates.

Extremely Successful Drivers

Several growth catalysts like new innovations in the Marketplaces segment as well as strategic acquisitions make me feel confident about eBay´s future. The company owned Bill Me Later (online payments), Gmarket (Asia-focused e-commerce), eBay Enterprise (formerly GSI Commerce) (enterprise commerce and marketing solutions), Shopping.com (comparison shopping), StubHub (online ticket sales) and PayPal (online payments). This one accounts for about 40% of the firm´s 2012 revenue and provides plenty of expansion opportunities. In the U.S. shows great acceptance by online retailers, in addition to processing a quarter of the domestic transactions. In June 2011, EBAY acquired GSI Commerce will contribute to cross-selling opportunities and capacity worldwide. This is an essential service thatAmazon already offers very successfully. We expect for the future that the company continues seeking for strategic acquisitions to improve its businesses. Moreover, in the mobile commerce arena, the firm focuses in easy and useful mobile apps, becoming one of the top 10 most popular Android apps. We consider this should drive growth even further in the years to come.

Valuation

In terms of valuation, the stock sells at a trailing P/E of 23.1x, trading at a premium compared to the industry average of 18.2x. Analysts’ expectations imply a forward P/E of 15.53. To use another metric, its price-to-book ratio of 2.8 indicates a premium versus the industry average of 1.7x and the price-to-sales ratio of 4.4x is above the industry average of 0.73x.

Finally, I always like to see the evolution of one of the most important financial ratios applying to stockholders, the best measure of performance for a firm's management: the return on equity. While eBay ROE of 12.5% is above the industry mean of 9%, Amazon's low ROE is not attractive. It is very important to understand this metric before investing in a high-growing company. The following graph shows the evolution of the ratio in the last 10 years. It can be seen that the ratio remains relatively stable in the case of eBay in the past four years.

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Final Comment

In my point of view, the strong acquisition program and the easier and safer mobile payment makes eBay an attractive choice.

Hedge fund gurus like Louis Moore Bacon, Chuck Royce, Ken Heebner and Julian Robertson added this stock to their portfolios and I would advise fundamental investors to consider adding this stock to theirs as well.

We have already analyzed the next driver for growth and innovation in the industry. It would also be interesting to turn the spotlight on Amazon, which I will look into in my next article, for your long-term portfolios.

Disclosure: Victor Selva holds no position in any stocks mentioned.


Rating: 3.8/5 (6 votes)

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