eBay Inc (EBAY), Amazon.com, Inc. (AMZN): This E-Commerce Company Is Still Good for the Long Run

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eBay Inc (NASDAQ:EBAY) has not performed well this year, as its appreciation of just 7% is behind the performance of the broader market. Last month, the company released second-quarter results, which were strong, but all was not great for eBay. Its forecast for the third quarter came in below expectations. Let us see what eBay did last quarter and examine if its weakness just a short-term event.

Review of the quarter

In its second quarter eBay Inc (NASDAQ:EBAY) reported revenue of $3.9 billion, which was 14% higher than last year, slightly beating the consensus. Furthermore, PayPal’s revenue increased by $1.6 billion, displaying growth of 20%, and eBay Enterprises booked growth of 19% in same-store sales. The strong performance was a result of innovation in the mobile segment and the smooth commercial experience that eBay provides to merchants and customers.

eBay Inc (NASDAQ:EBAY)The company reported second quarter net income of $640 million along with EPS of $0.49. However, earnings declined in comparison to last year due to a divestment of subsidiaries as eBay Inc (NASDAQ:EBAY) focused on its core businesses. Further, PayPal’s number of transactions and payment volumes were enhanced over the period, which was a result of product development and consumer awareness.

For the future

eBay Inc (NASDAQ:EBAY) expects to scale up its commerce volume to $300 billion by 2015. The company’s mobile segment experienced a growth rate of 90% by gaining 3 million new customers. Yet earnings are expected to grow at a lower rate with the weakening of the European and Korean currencies. eBay and PayPal expect the mobile-commerce business to execute $20 billion in transactions this year.

The company plans to take up a re-imaging program by opening up a 24/7 shop-able store and earn from its latest partnership with Kate Spade Saturday. With its latest venture like the “eBay Inc (NASDAQ:EBAY) now,” enabling delivery of goods to the doorstep in an hour, the company intends to be a leader in the commerce world. It plans to extend PayPal, which recently decided to wave transaction fees for deals up to $20,000 until January 2014. eBay is working towards extending its latest search engine Cassini, which performed exceptionally well in North America.

The company sees omni-channel commerce, mobile, and data as the upcoming areas of focus, and plans development in these segments. eBay Inc (NASDAQ:EBAY) continues to increase its global reach by adding eight new countries to its global shipping program. The company divested sites like rent.com and is focused on improving its financial flexibility by funding Bill Me Later loans. But eBay should be aware of its competitors like Amazon.com, Inc. (NASDAQ:AMZN) and Overstock.com, Inc. (NASDAQ:OSTK).

Stiff competition

Amazon.com, Inc. (NASDAQ:AMZN) is a serious threat that eBay Inc (NASDAQ:EBAY) needs to be aware. Amazon has been heavily investing in its business at the cost of earnings, which is evident from a rise of 22% in revenue in the recent quarter to $15.7 billion. Although the company took a net loss of $7 million, that is a result of its recent investments in the business. It is investing heavily in new warehouses to get closer to its customers and reduce its shipping costs. Amazon is on the path of turning itself into a broader technology company offering consumer gadgets like mobile devices and cloud-computing services.

To counter Amazon, eBay Inc (NASDAQ:EBAY) had to adjust its seller fee structure earlier this year. Amazon charges an average of 12% for every transaction, but eBay’s move earlier this year looks to undercut Amazon by keeping seller fees in the 4% to 9% range.

While this is a good strategy to compete with Amazon.com, Inc. (NASDAQ:AMZN) and keep sellers on eBay Inc (NASDAQ:EBAY), it might have a negative bearing on earnings in the future and lead to margin compression.

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