In a recent issue of Wall Street’s Best Investments, I included a ‘Buy’ on eBay (EBAY).
eBay was our Spotlight Stock, recommended by Patrick McKeough, editor of Wall Street Stock Forecaster. In his write-up, Patrick had this to say about eBay:
“eBay Inc. (EBAY) operates online auction websites in over 30 countries. In the past few years, eBay has expanded the availability of new merchandise, which now account for 80% of eBay’s total transactions.
eBay spent $923 million (or 10.7% of its revenue) on developing new products in 2015. That’s down 6.1% from $983 million (or 11.2% of revenue) in 2014. eBay’s ongoing development spending involves a plan to index the over 700 million items for sale on its websites. That will make it easier for users to find specific items, and discover related goods. Enhancing the user experience will help the company compete with online sellers, such as Amazon.com, as well as traditional retailers that are expanding their own e-commerce websites.
The company’s balance sheet is sound. It holds cash of $6.1 billion, or $5.18 a share.
The stock is down 16% since the PayPal spinoff. It now trades at just 12.8 times the $1.87 a share that eBay will probably earn in 2016. That’s a particularly attractive multiple considering eBay’s strong brand and ability to profit as more people shop online.”
In-store retail sales continue to fall. We have to look no further than Macy’s disappointing sales (announced yesterday) to reinforce that fact. Furthermore, research indicates that foot traffic in U.S. retail stores in the month between April to July 2014 and April to July 2015 dropped 14.6%, 9.8%, 9.1% and 11%, respectively, confirming the explosion of online shopping.
And social media is playing a big part in online retail—an area in which eBay (EBAY) is gaining ground. A recent survey from PricewaterhouseCoopers found that 78% of its global sample was influenced in some way by social media, up from 68% in its previous study, and participants said that “an interaction with a favorite brand on social media resulted in more respect for the brand.”
All in all, e-commerce around the world is expected to increase from $1.3 trillion in 2014 to $2.5 trillion by 2018 at a compound annual growth rate of 17%, according to eMarketer.
And that’s great news for eBay. The company has announced that it is moving into the social media arena—in a big way. It reports that it is active across 15 different social channels, and just announced that it would partner with Facebook to roll out a chatbot on Messenger. eBay is going after the millennial crowd, who spend 40 minutes or more each day on social media and 50% of whom shop via social media.
The company also recently entered an agreement with BigCommerce, which already has partnerships with Alibaba, Square, PayPal, Intuit and Pinterest. eBay will offer BigCommerce customers an inventory platform to list and monitor their products, giving them access to 162 million global active eBay buyers. And eBay will strengthen its presence in Australia and New Zealand.
Of course, all this growth in e-commerce is also a boon to Amazon (AMZN).
The Companies: eBay Vs. Amazon
Long an investor favorite, Amazon has had issues turning its stellar revenues into profits. But in the last four quarters, CEO Jeff Bezos has generated positive EPS (earnings per share). And the stock has had a nice 52-week run, growing from 418 to more than 700.
Of course, Amazon is much more than an online marketplace. Its foray into TV programming, cloud services—and now, its recent announcement to go head-to-head with YouTube with its Amazon Video Direct—should continue to expand its revenue base.
And the company’s profitability has given rise to more favorable analyst attention, with venture capital firm Social Capital recently saying this company—with a market cap of more than $336 billion—could be a “multibagger,” potentially increasing its market value to $3 trillion within 10 years.
Amazon’s customers are incredibly loyal, with its Prime product creating almost ‘cult-like’ following. And they buy everything on the site—from coffee to cosmetics to electronics to apparel. In fact, a Cowen analyst—noting Amazon’s retail power—has predicted that Amazon could overtake Macy’s apparel sales by 2017.
But eBay’s customers have created a community of people with like values and goals, which also encourages long-term relationships.
And while eBay sometimes invokes a reputation as ‘the site for grandma’s collectibles,’ Amazon is known to be the hangout for tech-crazy (and smart) Millennials.
The bottom line is that both companies are growing, and seem to be cementing their brands in their own distinctive marketplaces.
So, which one is the right investment for you?
The Stocks: EBAY Vs. AMZN
Amazon stock is expensive, no doubt, with a P/E (price to earning ratio) of 570, compared to eBay’s almost-17. And as you can see in the following charts, AMZN shares tend to be more volatile than EBAY, although EBAY has seen its shares of big dips and rises, too.
Both companies recently beat analysts’ earnings estimates, and both stocks have recently been downgraded by Wall Street. Analysts are forecasting an average stock price target of 800 for AMZN, while analysts predict 28 for EBAY.
That would mean a gain of 14% for AMZN, and 21% for EBAY.
I think you are good to go either way. Not everyone wants to buy shares of a $700 stock. But with today’s low commission rates, you can buy just one share if you so desire. Both companies have long-term legs and many reasons to buy.
You may want to add one stock or both stocks to your ‘checkout bag.’
Happy investing,
Nancy Zambell
Editor, Wall Street’s Best Investments and Wall Street’s Best Dividend Stocks
