There are a few sectors where growth never seems to stop, be it company’s revenue or market’s expectations from the company. E-commerce has changed the course of how people shop and has grown beyond expectations over the last decade. Let’s see how well the two market giants of e-commerce Amazon (AMZN, Financial) and eBay (NASDAQ: EBAY) are expected to perform.
A promising future
eBay is seeing tremendous improvement in the company’s entire portfolio of businesses and especially mobile transaction volumes, which were majorly up this year.
eBay has an early mover advantage and is making striking progress in its mobile business with 206 million users, 35% more than Amazon’s152 million. In the last year eBay mobile and PayPal have witnessed an amazing growth in volume, up more than 100%, and 250%, respectively. Payment volume at PayPal has been $14 billion last year, out of which only 10% transactions were through mobile which clearly explains the bright prospects of the company.
PayPal’s recent partnership with NCR Corp (NCR) gives it a major expansion opportunity into the physical world via ATMs. PayPal will shortly be accessible in 38% of major restaurant chains, and 50% of major retail chains, thereby giving the company’s revenue a major hike. 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 and be embraced willingly, thus adding to the growth of the company.
The industry veteran
Amazon has always come up with innovative ideas and better ways of doing things which has been followed by others in the industry. Amazon has always taken up 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 have also helped the company build up a long-term income generating option.
With all respect for Amazon and its future outlook, I believe that the company is running out of products to launch and its online operations are suffering because retail giants like Wal-Mart, Target, and Best Buy have increased their online operations. Amazon has a dominant position in domestic market but its international business is facing a lot competition as Chinese market is dominated by Alibaba, and European countries are still under crisis. Amazon's recent business lines, hardware tablets, kindle, and online video, Prime Instant Video are costly ventures operating at almost zero margins with uncertain future and stiff competition.
Interesting valuation
eBay with its amazing growth prospects looks insanely cheap at a P/E valuation of 18.5 while Amazon, and Overstock (OSTK) are trading at a P/E of over 3200 and 140 respectively. Revenue and earnings have grown in a stable way, both quarterly and annually. The Company has strong balance –sheet, and cash flow generating capacity from its operating activities with a balance of $9.14 billion. eBay has a very low debt-equity ratio of 0.23 in comparison to Amazon and Overstock’s ratio 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.
Final words
eBay is a very strong company with a lot of growth left in it. Its mobile business and PayPal’s recent developments with NCR has 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 next five years (as predicted by International Data Corporation). Investment in eBay means investment in the future which I feel is bright. Amazon too is a great company which has kept on delivering and raised investor’s expectations from it. The future Amazon businesses, whose outcomes are not yet certain, are unlikely to be as successful as its e-commerce business. Currently eBay looks more attractive an investment than Amazon.
