However, the weak results are not a concern. These investments should lead to future growth. The company is using its money to build warehouses closer to its customers, which will help in reducing its shipping costs.
Amazon has also expanded to other businesses, which are growing at a much faster rate as compared to its traditional retail operations. These businesses are proving to add much more to the bottom line. It includes cloud computing, advertising (revenue increased 59% in 1Q13), digital content and acting as an online marketplace for other merchants. Further, the company is investing in its Kindle family and aims to launch a smartphone later in the year. It is also rumored that it plans to launch a set-top box for TV content.
Slowly encroaching competitor
One company that is slowly encroaching on eBay Inc (NASDAQ:EBAY) and Amazon is Overstock.com, Inc. (NASDAQ:OSTK). Overstock sells a variety of items, from electronics to jewelry to cars. Its product assortment, pricing and customer service are top-notch, which has helped the company to deliver strong earnings growth. Its first-quarter revenues increased 19% sequentially from its fourth quarter. This was largely driven by its 21% increase in its average order size. It posted a 24% increase in its gross profit and an 80-basis-point increase in its gross profit margin, mainly due to a shift in its product mix as well as lower warehousing costs.
This company may be a good buy for an investor who doesn’t want to invest in slow-moving stocks like eBay Inc (NASDAQ:EBAY) and Amazon. However, it has a high PE due to the recent rally in its stock price post its strong first-quarter results. The company’s share price has more than doubled to $24 versus $11 before the first-quarter results.
Conclusion
Competition is high and both eBay and Amazon are doing their best to gain market share. Amazon’s advantage over eBay is that the online retailer is a place to buy new products whereas eBay has the image of a retailer of used products. But eBay is trying its best to move out from this traditional image.
According to a Forrester report, online retail sales are projected to grow 10% annually to $370 billion by 2017 from $231 billion in 2012. The majority of this growth will be driven by the increasing adoption of smartphones and tablets. And this is exactly the area that eBay Inc (NASDAQ:EBAY) is targeting. Quarterly earnings may distract investors for the time being, but I would recommend holding the company for the long haul.
The article Where is eBay Looking for Growth? originally appeared on Fool.com and is written by Shas Dey.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
