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eBay vs Amazon

August 22, 2014 | About:

Amazon (AMZN) and eBay (EBAY) are two of the largest e-commerce companies in the world. eBay is not just the largest but it's the most dominant online auction site in the world. Amazon is the one retailer in the world. Amazon and eBay have both made strategic acquisitions to grow their underlining businesses and gain more market share. Both companies have been in business since the 1990s, and both survived the dot-com bubble burst unlike e-commerce companies that fell when the bubble busted.

Amazon Inc. (AMZN)

Was founded in Seattle, Washington in 1994 by Jeff Bezos to sell books online. He believed that online commerce was the future and that there is a large worldwide demand for literature. The company online bookstore was a massive success that had rapid growth and a massive competitive advantage to the brick and mortars who can only offer about 200,000 titles while Amazon can offer an unlimited virtual warehouse of book titles. The company's initial business plan was unusual, it did not expect to make a profit for four to five years. Amazon's shareholders and investors didn't like the slow growth for Amazon to reach profitability that its unconventional business model caused. The company finally made a profit in the fourth quarter of 2001 – $5 million onn revenues of $1 billion. Today Amazon sells a wide range of products on its site from books to fresh food. Amazon manufacturers and sells E-Reader and Kindles to the general public. The company Kindle tablets holds at the end of 2013 a market share of 9.4%. Amazon today has over 20 million Prime members, who receive two-day free shipping and prime instant video. The has continued to expand its prime instant video which now includes HBO at a cost of $99. Amazon has introduced the fire phone through At&T for $199 dollar, and has introduced as well Kindle Unlimited for only $9.99 a month to read over 600,000 book for free.

Subsidiares:

  • A9.com – A company that is focused on researching and building innovative technology
  • Lab126 – Developers of consumer electronics like the Kindle
  • Endless Shoe – E-commerce site for shoes
  • Brillance Audio – Largest independent audiobook producer in the United States

Amazon Valuation Ratios

Price to Earnings (P/E) 869
Earnings Per Share (EPS) $0.60
Next Years (EPS) $0.66
Sales Per Share $162.11
Book Value Per Share $21.22
Growth Rate 10.69%
Price to Book (P/B) 17.67
EV/EBITDA 46.82

Amazon revenues increased 22% to $74.45 billion and net income totaled $274 million vs a loss of $39 million in 2013. North America Revenues increased 28% to $44.52 billion and international segment increased 14% to $29 billion for 2013. Online sales increased 28% to $44.52 billion in 2013. Amazon sell at 869 times its earnings of $0.60 per share. This shows that Amazon is overvalued and sells at an earning multiple that is over 500 times that of the NASDAQ which sells at 21.42. If Amazon sold at the same multiple as the NASDAQ, it would sell at only $13 per share or at the same multiple of eBay it would sell at only $16 per share. People are willing to buy Amazon at 869 times its earnings, which means people believe that Amazon will grow into this valuation.

For the six months ended June 30, 2014, revenues increased 23% to $3908 billion and net loss totaled $18 million vs income of $75 million. Revenues reflect an increase in demand for the company's products and services due to favorable conditions. Net loss reflects a North American segment income decrease of 35% to $562 million, and international segment loss increase from $16 million to $60 million.

Amazon's second quarter sales up 23% to $19.34 billion and operating cash flow increased 18% to $5.33 billion from $4.58 billion. Free cash flow increased to$1.04 billion from $265 million. Operating loss in the second quarter of 2014 was $15 million comparied to $75 million a year earlier. Net loss was $126 million comparied to $7 million a year earlier.

Balance Sheet

2013

31/12

2012

31/12

2011

31/12

2010

31/12

Total Current Assets 24625 21296 17490 13747
Cash and Short Term Investments 12447 11448 9576 8762
Cash - - - -
Cash & Equivalents 8658 8084 5269 3777
Short Term Investments 3789 3364 4307 4985
Total Receivables, Net 4767 3817 2571 1587
Accounts Receivables - Trade, Net 4767 3817 2571 1587
Total Inventory 7411 6031 4992 3202
Prepaid Expenses - - - -
Other Current Assets, Total - - 351 196
Total Assets 40159 32555 25278 18797
Property/Plant/Equipment, Total - Net 10949 7060 4417 2414
Property/Plant/Equipment, Total - Gross 14809 9582 5786 3256
Accumulated Depreciation, Total -3860 -2522 -1369 -842
Goodwill, Net 2655 2552 1955 1349
Intangibles, Net 645 725 647 563
Long Term Investments - - - -
Note Receivable - Long Term - - - -
Other Long Term Assets, Total 1285 922 769 724
Other Assets, Total - - - -
Total Current Liabilities 22980 19002 14896 10372
Accounts Payable 15133 13318 11145 8051
Payable/Accrued - - - -
Accrued Expenses 5288 3792 3751 1860
Notes Payable/Short Term Debt - - - -
Current Port. of LT Debt/Capital Leases - - - -
Other Current liabilities, Total 2559 1892 - 461
Total Liabilities 30413 24363 17521 11933
Total Long Term Debt 5181 3830 1415 641
Long Term Debt 3191 3084 255 184
Capital Lease Obligations 1990 746 1160 457
Total Debt 5181 3830 1415 641
Deferred Income Tax - - - -
Minority Interest - - - -
Other Liabilities, Total 2252 1531 1210 920
Total Equity 9746 8192 7757 6864
Redeemable Preferred Stock, Total - - - -
Preferred Stock - Non Redeemable, Net - - - -
Common Stock, Total 5 5 5 5
Additional Paid-In Capital 9573 8347 6990 6325
Retained Earnings (Accumulated Deficit) 2190 1916 1955 1324
Treasury Stock - Common -1837 -1837 -877 -600
ESOP Debt Guarantee - - - -
Unrealized Gain (Loss) - - 10 13
Other Equity, Total -185 -239 -326 -203
Total Liabilities & Shareholders' Equity 40159 32555 25278 18797
Total Common Shares Outstanding 459 454 455 451
Total Preferred Shares Outstanding - - - -

Cash Flow Statements

2013

31/12

2012

31/12

2011

31/12

2010

31/12

Period Length: 12 Months 12 Months 12 Months 12 Months
Net Income/Starting Line 274 -39 631 1152
Cash From Operating Activities 5475 4180 3903 3495
Depreciation/Depletion 3253 2159 1083 568
Amortization - - - -
Deferred Taxes -156 -265 136 4
Non-Cash Items 1337 802 589 190
Cash Receipts - - - -
Cash Payments - - - -
Cash Taxes Paid 169 112 33 75
Cash Interest Paid 97 31 14 11
Changes in Working Capital 767 1523 1464 1581
Cash From Investing Activities -4276 -3595 -1930 -3360
Capital Expenditures -3444 -3785 -1811 -979
Other Investing Cash Flow Items, Total -832 190 -119 -2381
Cash From Financing Activities -539 2259 -482 181
Financing Cash Flow Items 78 429 62 259
Total Cash Dividends Paid - - - -
Issuance (Retirement) of Stock, Net - -960 -277 -
Issuance (Retirement) of Debt, Net -617 2790 -267 -78
Foreign Exchange Effects -86 -29 1 17
Net Change in Cash 574 2815 1492 333

eBay Inc. (EBAY)

Was founded in 1995 by Pierre Omidyar and became a notable success story of the dot-com bubble. EBay is an auction site that allows users to list stuff they want to sell and auction it off to bidders. The company grew from a side hobby of its founder to a multi-billion dollar business with operation in over 30 countries. It has expanded the business to include "Buy It Now" standard shopping, shopping by product bar codes, buying books through the international standard book number, online classified advertisements, online event ticket trading, online money transfers and other services. The company generates revenues from various fees and has a fee system that is quite complex. It has fees to list products, fees when the product sells, and several optional adornment fees all based on various factors and scale.

eBay Valuation Ratios

Price to Earnings (P/E) 25.33
Earning Per Share (EPS) $2.21
Next Years (EPS) $2.53
Sale Per Share $12.39
Book Value Per Share $18.27
Growth Rate 14.49%
Price to Book (P/B) 3.14
EV/EBITDA 15.31

eBay revenues increased 14% to $16.05 billion and net income increased 9% to $2.86 billion in 2013. The company revenues from its payment segment increased 19% to $6.63 billion and marketplace segment increased 12% to $8.28 billion. Revenues from the United States increased 14% to $7.71 billion and international segment increased 13% to $4.22 billion. eBay sells at 25 times its earnings, which is about 5 times more then the NASDQA. If it sold at the same multiple as the NASDQA, it share price would be $46.

For the six months ended in June 30, 2014 , revenues increased 13% to $8.63 billion and net loss totaled $1.6 billion v.s. income of $1.3 billion. Revenues that reflect payment segment increase of 20% to $3.7 billion, marketplace segment increase of 9% to $4.9 billion, and internationl segment increase 16% to $4.5 billion. United States segment increased 11% to $4.05 billion and value of online sales payements increased 18% to $3.3 billion.

Balance Sheet

2013

31/12

2012

31/12

2011

31/12

2010

31/12

Total Current Assets 23283 21398 12661.45 11065.34
Cash and Short Term Investments 9008 9408 5929.4 6622.81
Cash - - - -
Cash & Equivalents 4494 6817 4691.1 5577.41
Short Term Investments 4514 2591 1238.3 1045.4
Total Receivables, Net 12948 11438 6195.28 4134.15
Accounts Receivables - Trade, Net 899 822 681.59 454.37
Total Inventory - - - -
Prepaid Expenses - 181 169.49 115.48
Other Current Assets, Total 1327 371 367.28 192.89
Total Assets 41488 37074 27320.22 22003.76
Property/Plant/Equipment, Total - Net 2760 2491 1986.22 1523.33
Property/Plant/Equipment, Total - Gross 6912 5610 4641.04 3822.52
Accumulated Depreciation, Total -4360 -3466 -2890.57 -2439.45
Goodwill, Net 9267 8537 8364.99 6193.16
Intangibles, Net 941 1128 1406.38 540.71
Long Term Investments 4971 3044 2452.76 2492.01
Note Receivable - Long Term - - - -
Other Long Term Assets, Total 266 476 448.42 189.21
Other Assets, Total - - - -
Total Current Liabilities 12639 10924 6734.2 4516.51
Accounts Payable 9569 8395 4250.65 2735.69
Payable/Accrued - - - -
Accrued Expenses 2648 1260 977.02 1042.5
Notes Payable/Short Term Debt - - - -
Current Port. of LT Debt/Capital Leases 6 413 564.6 300
Other Current liabilities, Total 416 856 941.93 438.32
Total Liabilities 17841 16209 9390.34 6701.58
Total Long Term Debt 4117 4106 1525.05 1494.23
Long Term Debt 4117 4100 1510.12 1494.23
Capital Lease Obligations - 6 14.92 -
Total Debt 4123 4519 2089.65 1794.23
Deferred Income Tax 841 972 1072.95 645.46
Minority Interest - - - -
Other Liabilities, Total 244 207 58.14 45.38
Total Equity 23647 20865 17929.88 15302.18
Redeemable Preferred Stock, Total - - - -
Preferred Stock - Non Redeemable, Net - - - -
Common Stock, Total 2 2 1.53 1.51
Additional Paid-In Capital 13031 12062 11144.83 10480.71
Retained Earnings (Accumulated Deficit) 18854 15998 13389.47 10160.08
Treasury Stock - Common -9396 -8053 -7155.42 -6091.44
ESOP Debt Guarantee - - - -
Unrealized Gain (Loss) 921 687 587.99 -
Other Equity, Total 235 169 -38.52 751.31
Total Liabilities & Shareholders' Equity 41488 37074 27320.22 22003.76
Total Common Shares Outstanding 1294 1294 1286.49 1297.71
Total Preferred Shares Outstanding - - - -

Cash Flow Statements

2013

31/12

2012

31/12

2011

31/12

2010

31/12

Period Length: 12 Months 12 Months 12 Months 12 Months
Net Income/Starting Line 2856 2609 3229.39 1800.96
Cash From Operating Activities 4995 3838 3273.67 2745.76
Depreciation/Depletion 1400 1200 939.95 762.47
Amortization - - - -
Deferred Taxes -31 -35 16.96 349.6
Non-Cash Items 1124 820 1071.58 731.84
Cash Receipts - - - -
Cash Payments - - - -
Cash Taxes Paid 466 789 372.53 645.78
Cash Interest Paid 99 15 29.2 0.05
Changes in Working Capital -354 -756 -1984.21 -899.1
Cash From Investing Activities -6012 -3763 -3306.86 -2282.47
Capital Expenditures -1250 -1257 -963.5 -723.91
Other Investing Cash Flow Items, Total -4762 -2506 -2343.36 -1558.56
Cash From Financing Activities -1354 1951 -838.5 1234.41
Financing Cash Flow Items -48 -60 -67.45 -78.75
Total Cash Dividends Paid - - - -
Issuance (Retirement) of Stock, Net -906 -415 -821.78 -475.54
Issuance (Retirement) of Debt, Net -400 2426 50.73 1788.7
Foreign Exchange Effects 48 100 -14.63 -120.1
Net Change in Cash -2323 2126 -886.31 1577.59

Compared valuation Amazon and eBay

Amazon had revenues of $74 billion compared to eBay that had $16 billion. Amazon revenues are 5 times that of eBay and has two times more cash on hand then eBay. Amazon sells at 869 times its earnings while eBay sells for 25 times earnings. If Amazon sold at the same multiple as eBay, its share price would be $16 and if eBay sold at the same multiple as Amazon its share price would be $1388. Amazon earned $0.60 per share compared to eBay that earned $2.21 per share, which shows that eBay is better at converting sales into profits which leads to earnings then Amazon.

Compared Amazon and eBay Stock Selling at Different P/Es

P/E Ratios Amazon Inc. eBay Inc.
Current Selling Price Based on P/E $375.04 $57.42
S&P 500 $11 $39
NASDQA $13 $47
Tech Sector $13 $47
Dows Industrial Average $10 $35

Based on these compared valuations both company are overvalued specially Amazon. I think a better multiple to use is Price to Sales multiple.

Compared Amazon and eBay Stock Selling at Different P/S

P/S Ratios Amazon Inc. eBay Inc.
Current Selling Price Based on P/S $374 $57
S&P 500 $258 $20
Tech Sector $198 $15

Amazon has $162.11 in sales per share compared to eBay which has $12.39. EBay sells for 4.63 times its sales compared to Amazon which sell for 2.31 times its sales. Based on sales per share Amazon is a better buy but it show that Amazon is bad at converting $163.11 per share in sales into earnings. While eBay has ony $12.39 per share in sales does a better job at converting sales in to earnings. Both companies are overvalued an no one should pay up for future growth that may or may not ever happen. But if you had to buy one of the company based on price to share if Amazon should at the same price to shares as eBay then it would sale for $755 per share. If Amazon sold at the same price to sales as top retailer like Walmart then its would sell for about $550 per share. Based on price to sale its clear that Amazon is undervalued and should trade up to 3.5 to 4 times its sales. Traditional valuation methods say that Amazon is undervalued but it in reality is undervalue and overvalued at the same time based on all valution methods used to today.

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Rating: 2.7/5 (3 votes)

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Comments

varadharajan
Varadharajan - 3 months ago

Wow. what's the logic here ? Sales recognition is'nt the same for ebay and amazon-ebay gets the 5-6% of commission from a sales facilitation whereas amazon recognizes the full GMV.

And what does the statement mean ?" Traditional valuation methods say that Amazon is undervalued but it in reality is undervalue and overvalued at the same time based on all valution methods used to today. Amazon offers the best long-term value over time"

PhilipCohen
PhilipCohen - 3 months ago

Retail Payments (and PayPal)—The Reality ... http://bit.ly/1nSA1Zl

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