eBay's Frail Recovery Shows How Far It's Fallen

20 Comments

At first glance, it looks like eBay (s ebay) and Amazon (s amzn) are swapping fortunes. eBay’s stock rose 11 percent the day after it posted second-quarter earnings this week, while Amazon’s stock dropped 8 percent in the wake of its own report. Amazon reported better numbers — its revenue in the latest three-month period rose 14 percent over the second quarter of 2008, to $4.65 billion, while its earnings per share declined to 32 cents from 37 cents. eBay, meanwhile, said revenue fell 5 percent to $2.1 billion and earnings came in at 25 cents a share vs. 35 cents the year before. Watching eBay shares outperform Amazon may seem odd, but it’s been going on for some time. Since the market bottomed out in early March, eBay’s stock has more than doubled while Amazon’s has risen 40 percent.

ebay vs amazon What’s going on? Is eBay really faring that much better than Amazon? Well, no — it’s just set lower expectations. Earlier this year, analysts and investors, noticing that eBay was floundering in the recession while Amazon thrived, feared CEO John Donahoe’s efforts to turn the company around were backfiring. There have since been signs of improvement, however. For example, the value of goods sold on the site in the second quarter rose for the first time since 2007.

In other words, the rally in eBay shares is due, in large part, to relief.

Gone is the eBay that Meg Whitman tried to create — a cultural phenomenon and growth machine where Skype would somehow make eBay’s auctions more useful. Under Donahoe, eBay hopes to eke out growth by selling used or refurbished goods, doesn’t plan to make any more major acquisitions, and sees Skype as simply a way to raise cash in the future. It’s resigned (or at least it appears to have) to sacrifice ambition and accept a humbler, grayer future. But at least it’s turning things around.

And while Amazon did see some disappointing media sales in its store last quarter, its larger story is still a compelling one. Its purchase of Zappos was welcomed as a shrewd, timely and modestly priced deal. The Kindle is paving the way for future e-book revenue. And the company has been patiently building a new source of revenue from cloud computing services, which could return more profits in future years.

Back in late 2005, after eBay announced it was overpaying for Skype, its market cap stood around $65 billion. Today, even after its stock has doubled in the past four months, its market cap stands at $27 billion. Meanwhile, Amazon’s market cap has gone from $19 billion in late 2005 to $37 billion today.

eBay may be on its way back, but it’s hard to imagine it returning to the glory days of earlier this decade. Amazon’s best days, on the other hand, may still lie ahead.

20 Comments

John

Mr. Kelleher,

Comparing revenues is a rather myopic way to compare these two companies. eBay is selling a venue and some added virtual services, exclusively. Amazon is selling material goods (and some virtual goods) for the most part. Different products means different things to consider. The promising thing to consider in eBay’s latest reports is that the number of material/virtual goods sold via eBay has begun rising again, after a bit of a slump. You’d have to do some research, but I believe eBay sold over $50billiion worth of material and virtual goods last year while Amazon sold just over $10 or $12 billion. That did not translate into equal or even similar revenues but both companies are making plenty of money, but it’s key to note that they both make money in very different ways.

If you were to factor in revenues for every item sold (by third parties, exclusively) via eBay it would blow Amazon’s numbers out of the water (even after including Amazon’s own “not piddly number” of 3rd party sellers). And that brings us to the real question: which site, of the big sites, has the staying power and will be the dominant ecommerce force in (the ever-increasing number of) online sales to consumers over the following years/decades? 10 years ago, 5 years ago, 3 years ago, the answer was clearly eBay and so eBay’s stock had a high trading price. eBay’s share of this market has slipped a bit over the past couple years (for a variety of reasons), and thus it’s stock has plummeted, while Amazon’s share has increased a fair bit in the same time, and thus it’s stock price has grown substantially. But for the long term, what will happen? Which company (not just between Amazon and eBay, but all the big players) is in the best position for the long haul? With eBay’s already staggering share of the online sales market combined with it’s extremely unique business model combined with it’s showing strong signs of turning it’s self around in a bleak economy, it seems apparent the answer is still eBay.

The fact that so many goods (i.e., a huge percentage, a near monopolistic number) are bought and sold via eBay relative to all other ecommerce sites, and the fact that eBay and it’s other company PayPal each get a modest cut of every sale is what eBay has going for it. The current eBay management understands the big picture for their business better than almost anyone else, and seems inclined to bring eBay’s near-monopoly status back to the practically-full-monopoly status it enjoyed for several years in the early days of the net, and as unlikely a prospect as that may seem, if you read what eBay’s management has been saying, they seem to have a very good plan for doing so. And when they eventually succeed, you can wager that eBay’s stock will be selling at an extremely high price. Buy It Now…

John

Is James one of the handful under contract stalkers who reply to people critical of Ebay?

Patricia

Well, there are more than one of those posts floating around. Seems someone has been following me about and posting just about the exact same wording. ;-) I would think Ebay is bigger than little ole me LOL

Patricia

By the way “james” are you the same Ebay “tool” who posted this on the Business Week article:

“To Matt Jul 24, 2009 4:15 PM GMT Matt: You are spot on. Patricia013 (and variations of “Patricia”) have posted anti-eBay comments on various eBay stories at numerous web sites over the last few years. Go eBay stock value!”

If so, I’m flattered to have picked up a…..”fan.” ;-) You really fool no one.

Patricia

James – I have opinions just like everyone else and since I’m retired now and basically put out of business by John Donahoes grand new business plan I have PLENTY of time to go around and tell everyone the truth. I speak no lies – just the truth. If you’re tired of reading it then skip my name….which is Patricia by the way. What business is it of yours how many threads I post on? Or is their a limit to how much truth I can post?

sunil

Good Going patricia, we need to expose the truth be it may ebay or google or apple or even god, these people are after profits before people, they have not able to curb inflation but just aided to fill deep pockets for the few on top, meg whitmen became a millionaire and now she sits on bankster goldman sachs board.

I have great ideas, but i’m reluctant to go to venture capitalist, who are after profits, cos they never understand karma. if you know someone in America who is not after profits but greater good of the society, let me know :o), its ok this was a JOKE hehehe..no im serious let me know

James

@Patricia: You have the habit of posting negative comments about eBay all over the web whenever you see an article which mentions eBay. You use different variation of your name (patricia) while posting comments. What is your problem?

Patricia

Ebay is becoming another Amazon/Overstock and is depending on its big name to carry them to the top of that heap. It just isn’t going to happen. Ebay burned too many bridges in getting to its new business model. Its not so much that Ebay wanted to change its business model – that’s up to Ebay to decide – but the WAY in which they are going about it has left them with a very tarnished reputation. Ruthlessly squeezing more and more money and enforcing outrageous policies are putting mom and pop’s out of business and that equates to slapping babies and kicking puppies around. Its not being done in a nice way and it will take years for them to live it down…if ever.

Sri

Your stock chart is pretty silly. Most investors tend to look at things on a YTD or 1 yr basis, not a “let’s print a stock chart that shows something interesting” basis. AMZN has outperformed eBay on both by nearly 20 points. And of course, on a 5 year basis, AMZN has more than doubled while ebay has been basically cut in half – eg a 4x outperformance.

The point is right, that it’s only a reflection of how far eBay has fallen, but I had to reply since interesting-but-manipulated graphics are my pet peeve. If someone just looks at that graphic, they could quickly think, incorrectly, the wrong things.

Kevin Kelleher

The stock market bottomed at its lowest levels in more than decade in early March. As I explained in the post, that’s why I chose that chart.

Also, people who obsess over stock charts for a living tend to regard those 1-year, YTD, etc charts as random and not very useful.

Sunil

Its the same story, come with hype and go down with profit, fooling everyone around.

Its a big scam people, These P/E ratios, acquisition, market cap.

In the last 10 years, is your life improved or you see prices going up all around ? Do you see more jobs ?

With all these technologies, were you able to take a long healthy break from work or got more sucked in for less salary?

These companies fire their own people and then come up with new products, its insane for profits for the top few.

I’m waiting for one tech writer to criticizes the whole tech industry that is now based on lies.

Lenley

I think James has an interesting take, for a long time it seems that people have given amazon favorable treatment, regardless of how Amazon’s ventures actually turn out. The PE ratios say a lot.

Kevin Kelleher

You’re right that I didn’t mention the Gmarket deal. Even so, eBay’s future still doesn’t seem as bright as it once was.

James

Has Amazon paid you to write this article? It seems that way. You need to read and re-read the eBay earning release carefully. Most of the things you have written are false, e.g. you are saying there is no major acquisition for eBay. Be informed that eBay recently acquired GMarket, a more than billion dollar acquisition. Skype is a money making machine. It recently posted revenue of 170 million dollars in the quarter. It would be a billion dollar business before it goes public. The best days of eBay are ahead, my friend!

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