The E-Commerce War Between eBay Inc (EBAY) and Amazon.com, Inc. (AMZN) Heats Up

The final option, and one I doubt the company will consider, would be partnering with a financial institution and have PayPal work as the brand and a financial institution as the issuer. This is the relationship Visa and Mastercard Inc (NYSE:MA) have with several banks, and actually the same relationship Mastercard has with PayPal. I simply do not believe eBay has interest in this solution, so I doubt it happens.

As for Amazon.com, Inc. (NASDAQ:AMZN), I anticipate that it will fight back—particularly since profitability is not its top priority. Amazon’s fees typically run around 12% of the transaction value (versus 4%-10% for eBay), and the company doesn’t offer nearly as much shipping flexibility as eBay Inc (NASDAQ:EBAY). Amazon could easily attempt to compete on fees, especially as a growing amount of its revenues comes from third party sellers. However, Amazon.com, Inc. (NASDAQ:AMZN)’s superior network strength may give it the power to charge premium take rates—the sellers want their products in front of as many buyers as possible.

If Amazon is able to retain traffic, Visa in particular could benefit since Amazon markets Visa-branded rewards cards. This could boost Visa’s network traffic, and does not leave the firm with any credit risk, since Visa does not issue credit.

Overall, I do not think the new fee structure changes our fair value estimate for eBay or Amazon.com, Inc. (NASDAQ:AMZN), but I am concerned it could launch a price war as the two e-commerce giants go head-to-head for sellers (and buyers). Ultimately, I like both companies’ long-term prospects, but I am simply not a fan of Amazon.com, Inc. (NASDAQ:AMZN)’s valuation at this time. On the other hand, eBay Inc (NASDAQ:EBAY) remains a holding in the portfolio of our Best Ideas Newsletter. Both marketplaces have strength and weaknesses, so I believe the two can coexist; albeit perhaps not peacefully.

The article The E-Commerce War Between eBay and Amazon Heats Up originally appeared on Fool.com and is written by RJ Towner.

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