During the first quarter of 2013, eBay Inc (NASDAQ:EBAY) reported a 14% increase in year-over-year revenue. This was predominantly due to the increasing popularity of its mobile commerce platform and eBay’s growing presence in the emerging markets. The company successfully added approximately 3 million new users to eBay and PayPal via internet-enabled mobile phones. The current stock price of eBay is trading at around 95% of its 52-week high. A strong first quarter allows me to keep a bullish view on this stock.
Another broad competitor to Amazon is Best Buy Co., Inc. (NYSE:BBY). Best Buy offers a wide variety of consumer electronics, entertainment software, office products and appliances. The company generates the highest percentage of its revenue through U.S. based stores at around 67.3%. This is followed by revenue through international stores at around 25.3%. During the first quarter of fiscal 2013 the company failed to report any comparable growth in revenue. This was primarily due to discontinued operations in Europe.
As per the projections offered by Trefis, Best Buy Co., Inc. (NYSE:BBY)’s big box stores might experience a sharp decline in the future. During 2011, Best Buy operated through approximately 1100 stores within the U.S, however, Trefis estimates a decrease of approximately 140 stores during the next six or seven years. If the decrease in stores is even sharper (200 or more), subsequently there may be a heavy downside to its stock price.
Investors must keep a close eye on its store closure strategy, as any upside or downside in its stock will heavily depend on it.
Cash flow or margins?
I believe Amazon’s branched out product mix and rapid growth in the e-commerce channel will spur its revenue growth, but a combination of various micro factors could threaten its profitability.
Presently, Amazon is trying hard to establish fulfillment centers in order to produce same day delivery; nevertheless, it is now facing an increasing competition from various web services. In addition, the company is investing heavily in order to build its content library. Such initiatives are extremely capital intensive, which may impact the already recoiling margins of Amazon.
Nonetheless, the company’s management is shifting focus from margin expansion to revenues growth in order to increase absolute dollar free cash flow. Higher free cash flow would allow Amazon a higher equity valuation, in addition, cash is a tangible item that investors can spend. This strategy will certainly spur Amazon’s growth in the future.
The article What Underpins Amazon’s Success? originally appeared on Fool.com and is written by Ashit Gulati.
Ashit is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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