EBay Is A Stronger Company Than Amazon – And I Can Sort Of Prove It

20 Jan

It’s earnings season for Amazon, eBay, and the rest of corporate America.  If you’re unfamiliar, it means that publically traded companies are about to announce how much money they made in the fourth quarter of 2009, among other things.  Every quarter, eBay’s arch-nemesis Auctionbytes throws up Nielsen’s traffic and visitor statistics to show how eBay is in decline while Amazon is flourishing.  In addition, eBay “bloggers” around the world go on about how eBay’s stock is in the toilet and the company is doomed.  Since Auctoncope.com really isn’t a normal website and I am by no definition a normal human being, I will spend the next few paragraphs playing the role of the devil.  I will prove, beyond a shadow of a doubt, that eBay is actually the stronger of the two companies.

First of all, eBay is more profitable than Amazon.  EBay has always been more profitable than Amazon.  Every single quarter of every single year, eBay’s profit is higher than Amazon’s.   Last quarter, Amazon had a profit of 199 million dollars.  EBay turned a profit of 350 million dollars last quarter, or 151 million dollars more than Amazon.  If profit is how we measure success then I could just stop now.  But, as you wish, I will continue.

A lot is said about Amazon’s stock price compared to eBay’s.  Amazon’s current stock price is $127.61, down 12.5% from its 52-week high of $145.91.  EBay’s current stock price is $23.26, down 9.8% from a 52-week high of $25.80.  Had you purchased $10,000 worth of eBay stock exactly one year ago, it would be worth $23,471 today.  That’s a profit of $13,471.  Had you purchased $10,000 worth of Amazon stock exactly one year ago, it would be worth $26,741 today.  That’s a profit of $16,741, or about $3,300 more profit than eBay.  Amazon is the better performer here, but not by nearly as much as the haters might suspect.  Let’s also not forget Amazon stock was worth a measly $34.68 just 14 months ago, down from a previous high of $101.  Had you purchased the stock for $101 and sold for $34, you would have lost almost $67 a share.  Not exactly the definition of a perennial power house.

Of the 22 independent stock ratings I have access to, Amazon is rated a “strong buy” from five, a “buy” from eight, and a “hold” from nine.  Standard & Poor’s rates Amazon three stars, or a hold, with a 12-month price target of $110.  Of the 21 independent stock ratings I have access to for eBay, five rate a “strong buy,” seven rate a “buy,” and nine rate a “hold.”  Standard & Poor’s rates eBay stock four stars, or a buy, with a 12-month price target of $26.  The ratings of the two stocks are almost exactly the same, although the fact that S&P projects Amazon stock to be about $20 lower in 12 months is a sign that many expect  that Amazon may not meet its lofty revenue and income goals.  Amazon’s rise in the last 14 months, from $34 to almost $146 is amazing, but it’s based mostly on guidance and expectations.  If Amazon is unable to meet those expectations, the stock will fall just as fast as it rose.  EBay is a victim of the exact opposite phenomenon.  We know what to expect from eBay, so their stock no longer rises and falls based on fairy tales and pipedreams.  Stock price is rarely any indication of how well a company is actually fairing, so it’s somewhat naïve to base any conclusions on current pricing trends.

Amazon’s traffic may be higher than eBay’s, but Amazon and eBay have two completely different business models and comparing their traffic is silly.  Amazon has earned the reputation of being one of the best e-tailers on the internet – and they deserve that reputation.  Their customer service is generally excellent and their prices and selection are some of the best found anywhere, both online and off.  When you “Google” a product, Amazon is usually at the top of the search results.  Many people check Amazon for pricing information and user reviews.  Forums like Slickdeals and Fatwallet link to Amazon in almost every thread for exactly the same purpose.  People are interested in what others think about products and Amazon’s product pages are usually the easiest way to find them.  On top of that, Amazon sells MP3 files similar to the iTunes store and Kindle books for its proprietary book reader.  They have also added fresh groceries, top of the line televisions, and a wide range of other products over the past few years.  All of this translates to increased traffic and unique visitors for Amazon.

On the other hand, eBay doesn’t sell anything.  They don’t manufacture the Kindle.  Selling fresh lettuce on eBay would likely get you suspended.  This is all fine and well as far as eBay is concerned.  Certainly they would like to increase unique visitors and overall traffic, but 50 million unique visitors a month is hardly slouching.  According to Alexa (owned by Amazon), eBay.com is the eighth most visited website in the United States.  Amazon.com is the seventh.  EBay trails by only one slot and they barely even do anything!  Imagine if they let us sell cabbage!  We also have no idea about the accuracy of these ratings.  Counting unique visitors isn’t an exact science.  Sometimes I load up some proxies on my Mom’s computer and tell her to refresh it a couple of times and then get excited when it says I received seven visitors instead of my usual three and a half.  For all we know Amazon outsourced jobs to India where poor little children just plug and unplug in their modems while refreshing Amazon.com all day.  You just never know.

Amazon also sells many of its products at a loss.  Remember that Amazon only made 100 million dollars profit on over five billion dollars in sales?  Exxon Mobil made a profit of about 110 times that during a quarter they characterized as “rough.”  Imagine if they had more than one product!  The pricing war with Wal-Mart has been well publicized this year, as the two dueled it out over books and video games.  It got to the point where Amazon was selling books for less than it cost independent bookstores to buy them from the publisher, so Amazon had to limit orders to one per title because bookstore owners were buying from Amazon for less.  Pricing wars may be good for the customer, and increase traffic, but as we can see it certainly doesn’t help their bottom line.  Amazon sells items in other categories for great losses as well.   For example, I bought the Seinfeld Monopoly board game for five dollars with free two-day shipping last month.  There’s no way Amazon made any money on that sale.  I don’t even like Monopoly or Seinfeld for that matter; I just bought it because it was a Slickdeal.  On the other hand, eBay never loses money on a sale.  In fact, they make money even when products don’t sell.  What a business!

Amazon is written about like it’s some kind of Mecca.  It’s almost as if Jesus returned to earth solely to create a third-party marketplace where we can all sell used video games and phone chargers in peace.  In reality, Amazon is far from ideal.  I could talk about how Amazon holds payments for up to 180 days and only lets sellers withdraw funds on a specified schedule.  There are few categories available to third party sellers.  I could point out that Amazon’s listing restrictions are much stricter than eBay’s and their tolerance for buyer dissatisfaction is nonexistent.  I could say that most people have no idea that the third-party marketplace on Amazon even exists and that it only confuses customers who are only interested in buying from Amazon.  I could go on and on, and I will in the future, don’t worry.  Just remember, Amazon can always sell a product for less than we can – and in most cases they do.

EBay reports their fourth quarter earnings January 20th and Amazon follows suit January 28th.  It will be interesting to see how the two faired.  I expect Amazon to post a sizable profit, mostly from music, Kindle, and third-party sales revenue.  With free shipping, they simply don’t sell products for enough money to profit on them.  EBay revenue will probably be flat at best as they continue to try to figure things out.  PayPal, as always, will be strong.

Take care, and I will holler in your general direction soon.

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