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 β $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 β A company that is focused on researching and building innovative technology
- Lab126 β Developers of consumer electronics like the Kindle
- Endless Shoe β E-commerce site for shoes
- Brillance Audio β 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
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| 2010
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|---|
| 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
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|---|
| 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
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| 2012
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| 2011
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| 2010
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|---|
| Period Length: | 12 Months | 12 Months | 12 Months | 12 Months |
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| 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.
