Several leading online companies such as Amazon.com, Inc. (NASDAQ:AMZN) and eBay Inc (NASDAQ:EBAY) haven’t performed well in the past several months as their shares only slightly rose. Share of these companies are not beating the market (up to date). But are these companies doing better than the online retail market? Are they still beating other E-commerce sites? Let’s take a close look on this issue.
Non-Store Retail Keep Rising
Based on the latest Census report (opens pdf), retail sales slightly rose during the first quarter of 2013 by 2.8% (y-o-y). The non-store retail sales spiked in the first quarter by almost 13% (y-o-y). The online shopping sales (opens pdf) account for roughly 50% of the non-store retail sales. The higher growth rate in E-commerce compared to the growth in sales of retail sales will keep augmenting the market share of E-commerce out of total retail sales.
Let’s take the sales growth of 13% as a benchmark to the measure the performance of leading online retailers.
Another benchmark is the ETF that follows retail – SPDR S&P Retail (ETF) (NYSEMKT:XRT). This ETF follows 97 retail companies. The share of online retail companies out of the total fund’s holdings is almost 9%. The ETF holds leading online companies such as Amazon and Netflix. E.g. the ETF’s holdings are comprised out of 1.13% of Netflix’s shares and 0.92% of Amazon’s shares. The market value of the ETF rose by roughly 13% during the first quarter of 2013. Although this ETF follows different sectors of retail, its 13% growth in value could still serve as another benchmark to examine the performance of leading online companies. So with these figures in mind let’s examine the performance of leading online retailers.
The company’s net revenues grew by almost 22% in the first quarter of 2013 (y-o-y). Conversely, Amazon.com, Inc. (NASDAQ:AMZN)’s operating profit margin declined by 5.7%; its operating profitability slipped from 1.5% in the first quarter of 2012 to 1.1% in the first quarter of 2013. One of the reasons for the drop in profit margin is the 46% rise in the company’s research & development provision that reached $1.38 billion. Since the company continues to develop new products such as its Kindle line of products, the rise in the R&D provision is an indication for the company’s potential future growth. The company’s U.S operations continue to lead the growth in sales with nearly 26% in the recent quarter. In comparison, the company’s international sales grew by only 16%. The profit margin in the U.S was also higher than the one in the international segment. Therefore, the company’s steady growth in the U.S along with its growing R&D provision is keeping Amazon.com, Inc. (NASDAQ:AMZN)’s growth in sales well above the E-commerce sales growth.
This company, much like Amazon.com, Inc. (NASDAQ:AMZN), has outperformed the E-commerce sector in the past quarter (in terms of revenues growth): in the first quarter of 2013, eBay’s sales grew by 14.4% (y-o-y) and its operating profit rose by 22.5%. Moreover, the company’s operating profitability slightly increased to 21.3%. The company’s growth in revenues was mostly from the international segment that grew in the recent quarter by 16%. In comparison, the U.S revenues rose by 13%. In 2013, the company projects its net revenues will range between $16 and $16.5 billion, which represents around 15.5% growth in revenues. This growth rate is lower than the growth rate eBay Inc (NASDAQ:EBAY) had in 2012: its revenues grew by 21% in 2012 (y-o-y). The slower growth rate might have contributed to the poor performance of the company’s stock in recent months. Nonetheless, eBay Inc (NASDAQ:EBAY) is still outperforming the E-commerce sector in terms of sales growth and is likely to continue on this path in the coming months.