Amazon, eBay Battle For Investors By Expanding To Increase Revenue

NEW YORK (Phil Wahba) - When Amazon.com and eBay report quarterly results next week, investors will try to determine how well the e-commerce rivals' expensive fight for shoppers is paying off.

They will want to see if revenue is growing fast enough to justify the costs.

Amazon has been moving further from its traditional business selling physical goods online to take on tech rivals like Apple Inc and Google Inc in areas such as selling digital entertainment and storing data.

EBay is best known for its online auction website and PayPal, a payment system, but it has been making deals to compete more directly with Amazon, such as its $2 billion purchase in May of e-commerce services firm GSI Commerce. That deal is aimed at getting more retailers to sell to their customers using eBay.

Amazon's growth -- its sales nearly doubled between 2008 and 2010 -- has come at a cost: shrinking operating margin. Amazon has made no bones about it, warning investors to expect pressure on its profitability for some time yet.

The question for investors will be how much pressure.

"They (Amazon) are investing for the future and it's just a matter of how long this investment process will take," said Michael Koskuba, a senior portfolio manager at Victory Capital Management, which has owned Amazon stock since March 2009.

Amazon shares plunged 9 percent on January 27 when it reported a lower operating margin over the holiday quarter.

Amazon has been challenging rivals from Apple to Barnes & Noble Inc and many others with low prices on e-books, cheap shipping and offering customers the ability to store music on its servers in a "music locker."

A stellar sales performance by Amazon would mollify investors worried about the impact on profits, but a so-so performance could send shares down.

"If Amazon has a strong revenue quarter, people will be more willing to overlook margins," said Cowen & Co analyst Jim Friedland. "If they come in close to expectations (on sales) but margins are weaker, that would absolutely provoke a sell-off."

Ultimately, revenue will be the barometer of how well Amazon is doing at fending off a resurgent eBay.

"Revenue reflects how much market share they still have to gain," said BGC Partners analyst Colin Gillis.

On average, Wall Street analysts expect Amazon to report a first-quarter profit of 61 cents per share on $9.52 billion in sales, down from 66 cents a year earlier, according to Thomson Reuters I/B/E/S.

They expect eBay's profit to come to 46 cents per share on revenue of $2.48 billion, compared to 42 cents per share a year earlier.

For a graphic comparing Amazon and eBay's revenue growth, see: r.reuters.com/nuj29r

SCRUTINY OF EBAY'S AUCTION SITE

Investors will most likely be swayed by how much merchandise is sold on eBay's auction site as well as the number of new PayPal accounts.

But one analyst said eBay would probably only get punished for weakness, rather than rewarded for strength.

"If eBay falls short, it's more about stronger than expected competition from Amazon, but if it rises more than expected, it's more about the (better) overall economy," Cowen's Friedland said.

Friedland is expecting gross merchandise volume, a closely watched measure of the total value of goods sold on eBay's marketplaces, to be up 6 percent increase, excluding vehicles.

PayPal has led the company's revenue growth for years, while its marketplaces unit has matured. PayPal accounted for just over one third of sales last year but its revenues rose 23 percent, while the marketplaces business sales were up only 8 percent.

Amazon shares trade at a 2011-earnings-to-price multiple of 55, far above most store chains as well as eBay, Apple and Google, suggesting the stock has downside.

EBay shares trade a future earnings to price ration of 16.4 and analysts say that means it may have more upside than Amazon's if its results impress investors. They have slipped 10 percent since hitting a yearly high in February.

"EBay is coming back. If you want e-commerce exposure, buy eBay." BCG's Gillis said.

(Reporting by Phil Wahba. Editing by Gary Hill)

Copyright 2011 Thomson Reuters. Click for Restrictions.

Comments

[Iva Bigun]

01:36 PM on 04/24/2011

ebay, like Donahoe, doesn't know what it wants to be when it grows up.

[Iva Bigun]

12:35 PM on 04/24/2011

eBay, under the Donahoe regime is reanimated corpse. Just like a zombie it lurches and stumbles around with no direction and destroys everything in its path including sellers.

There is no more focused direction to this company than a herd of cats.

Although eBay claims to be, "just a venue" they micromanage, interfere, obfuscate, inject themselves and manipulate every aspect of "seller experience."

Management by microcephalic Ivy League propeller heads who have no concept of selling.

It is criminal what has been done to this once great platform.

Take away their incestuous money changing sister with the "ugly product", PayPal's earnings from the total earnings and this gaggle of management would drown in the own spin department's spit.

The next "disruptive innovation" should be to give the Gang of Four their walking papers.

[silverlake3]

08:41 PM on 04/23/2011

The trick here is to not put all of your e commerce business on one site. I do Ebay Amazon and Ebid and I just started doing Overstock. You all are right about one thing. Ebay is looking to get rid of the small seller with help from the government. Starting this year you will get a 1099 from them if you sell more than 20K in a year. Gone will be the people who troll yardsales to sell on Ebay to make some extra money to help pay the bills. The IRS has caught up to people who sell on Ebay and other E commerce and do not report the income

[Evelyn McHugh]

04:38 PM on 04/23/2011

Doing auctions since the days of "Yahoo Auctions", some 15 years ago, we used to do Ebay, and from time to time, go back at dip our toes into the pool. It's now an open sewer - it does not matter what terms you put on an auction, how carefully you describe things, Ebay will take $$s from your account and give it back, even to open, unrepentant scammers, and you have to waste your time fighting fix it and make pennies on the dollar. One lunatic and your reputation is toasted, with no way to recover it, or explain it to the reasonable people. There are so many alternative venues now, why anyone would give Ebay/Paypal a penny of profit is bewildering. They are the poster children for how good ideas and businesses are destroyed when they change their focus from their base of small entrepreneurs to big corporate interests that just hope to make it up in volume. Yahoo used to be the leader, once upon a time, too.

[nothingchanges]

11:25 AM on 04/23/2011

Ebay's business model contains a fundamental flaw.

When it started out, it was basically an on line auction for individuals to buy and sell used and/or surplus items. The feedback system worked both ways, now only buyers can leave feedback on a transaction, sellers can only rate buyers as "positive"

I strongly suspect this will eventually eliminate private individual sellers entirely, leaving only businesses (with higher prices to allow higher profits to absorb losses from bad transactions with unscrupulous buyers).

Whether you're a buyer, or a seller, you will eventually get "burned". Get burned badly enough, and you leave, never to return.

Without a viable arbitration mechanism to resolve buyer/seller issues, it's just a matter of time before eBay is no more. eBay is not what it once was, and continues to decline.

[sergal stew]

01:40 AM on 04/23/2011

There's a great interview with John Donahoe.

http://youtu.be/e3H9LPVknk8

[long travler]

11:07 PM on 04/22/2011

I have given up my store on Ebay after being a seller for 9 year's. Between Ebay and Paypal (same company) have gone to the extreme with there fee's and now ebay is charging sellers a 9% fee on the money they collect from the buyer for shiiping cost. (charging me a fee on money that does not go into my pocket, but is to cover postage cost for shipping the buyers item.) I have moved my store to webstore.com, which is a geat auction site and is growing everyday. A mass exit of longtime ebay sellers like myself have left FEEBAY (Ebay) BEHIND for good. Corporate greed......................

[SFTraderSteve]

08:34 PM on 04/22/2011

Please, all buyers go to other sites such as eBid, Bonanza, etsy or WebStore! Tons of sellers who have been with eBay are closing their store and moving elsewhere so they can sell for less due to less fees. Ebay just raised their fees again a couple of days back.

[kewps]

11:04 PM on 04/22/2011

You're absolutely correct. I just closed my store after 10 years. eBay is a joke. I have taken my wares to Atomic Mall, Bonanza, eCrater, Amazon, and I have several affiliate domains. I am also publishing books on Kindle and Nook.

[the man downstairs]

01:45 PM on 04/26/2011

yeah,right.

you're begging for buyers on here because there are no buyers at any of those sites.

it is time for a new ebay,where overpriced yard sale junk and collectibles need to get out of dodge.

[OzzieVoodoo]

08:27 PM on 04/22/2011

Fleecebay and Failpal are the two most slimest companies on the internet.

Anyone who sells or buys on Fleecebay deserves everything the get.

Until they get rid of DonutHole Fleecebay will never be a good company to deal with. Until then PLEASE SPEND YOUR MONEY SOMEWHERE ELSE.

[Mark Chatham]

07:27 PM on 04/22/2011

eBay reflects current economic life. It's not fun, it's not fair and it's not profitable. Look elsewhere.

[Erin Scott]

06:22 PM on 04/22/2011

While ebay is trying to get big retail chains to sell on their site, they are systematically attacking independent sellers with policies that are impossible to meet such as the detailed seller rating system. All it takes is a couple impossible to please buyers or even ones who accidentally clicked the wrong thing and your selling priviledges are revoked forever. Yet Toysrus, who has a seller account on there gets to have 200 negative feedbacks and gets to stay in business. The fees are exorbitant and there is no longer any such thing as seller protection. Ebay takes money out of sellers' paypal accounts to give back to buyers who complain even when the sellers can prove the buyer is lying and the buyer doesn't even have to send the item back. So paypal takes your items and gives them away for free to scammers. Isn't that great. Ebay is a joke, and I'd encourage any of you honest folks out there who buy on there to start considering other venues suck as overstock or etsy.

[kewps]

11:00 PM on 04/22/2011

I agree 100%. Fanned.

[Iva Bigun]

12:54 PM on 04/24/2011

An orchestrated damage control team of affiliated users, including GSI Commerce employees, and sundry trolls worked diligently to ameliorate the effect of the flood of negative feedbacks toysrus was receiving in November/December 2010.

Behind the scenes a myriad of negatives left for them simply vanished with no recorded feedback revision on the unhappy buyers' part in eBay's efforts to put DSR lipstick on the floundering toysrus pig.

With eBay, much loved Diamond sellers are too big to fail and cannot be bothered with the burdensome rules and regulations that impact hoi polloi small sellers.

Does anyone really believe that the "Big Boys" will be paying FVFs on their shipping charges?

[French Toast]

06:16 PM on 04/22/2011

I detest eBay. I have a pretty favorable view of Amazon.

[Mr Carp]

05:33 PM on 04/22/2011

Both platforms have their long and shortcomings, I do have to agree that PayPal is detestable though. To this day I find it shocking that anyone would accept the inflated transaction charges and the sub-par security that exudes from every PayPal purchase.

[kewps]

05:31 PM on 04/22/2011

Jeff Beezos of Amazon will continue to kick eBay's behind. eBay has become a hostile selling environment unless you are a big-box diamond seller. John Donahoe, eBay's CEO, has really dismantled the site since he took over in '08. It has no resemblance to the fun, lucrative site it used to be. Just another example of corporate greed at it's best selling Chinese junk.

[designcreature]

04:14 PM on 04/22/2011

eBay used to be consumer friendly. Not any more. They are making it more and more difficult with their new policies that they say make selling/buying easier. Not one bit of truth there. They've tangled up shipping costs so nothing makes sense any more. Definately not the company it was even five years ago. Guess it can be called progress. I call it depressing.

[Iva Bigun]

01:46 PM on 04/24/2011

eBay, by devise, has created an adversarial relationship between buyers and sellers.
Their management's deus ex machina interference model has instilled fear and paranoia in both parties to transactions on their platform.

The very first thing a buyer, or potential buyer, sees when logging in is a banner telling them if they get screwed (or simply change their mind) eBay will make them whole.

It sends out a degrading message about "the buying experience" and reminds me of being frisked for weapons at the front door of a tough bar and if none are found they issue you a loaner.