Can EBay Keep Up With Amazon?

on March 19 2013 12:53 PM

With shares of eBay Inc. (NASDAQ:EBAY) trading at around $50.11, is EBAY an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

PayPal! PayPal! PayPal! Apologies for the repetition, but to understand eBay’s potential, this point must be driven home. Love it or hate it, PayPal’s potential is enormous. It’s just beginning to move into traditional stores, which is an early sign of things to come. For those who aren’t true believers in PayPal, it’s important to note that PayPal just saw a 24 percent increase in payment volume. PayPal also has an agreement with Discover Financial Services (NYSE:DFS) for mobile payments. Currently, PayPal has 50 million U.S. customers. Considering the U.S. population is just over 300 million, that’s quite impressive. In related news, PayPal recently acquired Duff Research. Investors had mixed opinions about this news. Time will tell whether it was a good move or not.

eBay has also seen strong Marketplace performance, double-digit user growth, improved earnings, and it has offered strong guidance. Everything looks good so far.

Amazon.com Inc. (NASDAQ:AMZN) is one of eBay’s biggest competitors. Amazon is a much bigger company, but these two companies have the potential to steal market share from one another. Therefore, they can be compared. One way to help predict a competitive edge is to look at traffic trends at Alexa.com. This isn’t a surefire way to predict which company will gain market share going forward, but it does offer a hint. Over the past three months for eBay, pageviews have increased 13.10 percent, pageviews-per-user has increased 8.3 percent, bounce rate has decreased 7 percent, and time-on-site has increased 12 percent. These are all impressive numbers. Over the past three months for Amazon, pageviews have decreased 5.27 percent, pageviews-per-user has decreased 13.40 percent, bounce rate has increased 13 percent, and time-on-site has decreased 15 percent. These are all unimpressive numbers.

Sticking with the comparative theme, the chart below compares fundamentals for eBay, Amazon, and Overstock.com (NASDAQ:OSTK). eBay has a market cap of $65.15 billion, Amazon has a market cap of $117.57 billion, and Overstock has a market cap of $227.63 million.

Ebay Ebay  http://wallstcheatsheet.com

Let’s take a look at some important numbers prior to forming an opinion on this stock.

E = Equity to Debt Ratio Is Strong

The debt-to-equity ratio for eBay is stronger than the industry average of 0.30.

Ebay Ebay  http://wallstcheatsheet.com

T = Technicals on the Stock Chart Are Weak    

The past three years have been good to eBay, but the past month has been subpar, and that’s an understatement. However, the past month has been poor for the industry.

Ebay Ebay  http://wallstcheatsheet.com

At $50.11, eBay is trading below all its averages.

50-Day   SMA

54.48

100-Day   SMA

52.29

200-Day   SMA

48.50

 

E = Earnings Have Been Inconsistent          

Earnings have been inconsistent on an annual basis. The good news is that revenue has steadily increased.

Ebay Ebay  http://wallstcheatsheet.com

When we look at the last quarter on a year-over-year basis, we see an increase in revenue and decline in earnings.

Ebay Ebay  http://wallstcheatsheet.com

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Support the Industry

Ecommerce is growing rapidly thanks to time-saving, convenience, comparison shopping, and reviews. Strong momentum in mobile will also help fuel growth.

Conclusion

eBay is doing fine on its own, but PayPal’s is the most important factor with this story. Due to PayPal’s enormous potential, eBay is a long-term OUTPERFORM.

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