Possible Investment Potential - Amazon vs eBay - Essay Example

Finance and Accounting: Possible Investment Potential; Amazon vs. eBay Possible Investment Potential; Amazon vs. eBay Amazon.com History Amazon Company was started in 1994 by Jeff Bezos and launched in 1995. The Amazon is based in Seattle, WA. Amazon, and is among the Fortune 500 e-commerce companies. The company pioneered the sale of goods over the Internet. The company started as an online bookstore after which it diversified by including other items like VHS tapes, Music CDs, DVDs, video games, MP3s, electronics, furniture, toys and clothing (Ritala, Arash, & Alain, 2013). Amazon can be considered as pure customer centric company reflected by its value statement of customer obsession, innovation, bias for action, frugality and high hiring bar. The company works from the customer backwards and believe that failure to listen to the customers is an automatic failure. The company believes that it lives in a time of insurmountable opportunity and the unheralded revolution where they must make even minute to count. They believe that ownership is necessary, especially when building a company where the owners are compelled to think long term as well as plead passionately for their ideas and projects while formulating respectfully challenged decisions. Their hiring bar considers the need for the ability of the person in offering the services. In frugality, the company usually spends many finances on things that matter as they believe that frugality breeds self-sufficiency, invention and resourcefulness (Jones, 2011). Currently, Amazon employs more than 14,000 employees in the world. Their engineering department is involved with the tackling of complex challenges within the large scale computing to contribute to the e-commerce platform used by Amazon customers, sellers and merchants and external developers. The IT department is involved with massive responsibility of overseeing the system to ensure that it is reliable. Products and Services by Amazon The business in Amazon is much simpler than normal book retailer stores. The business does not require costly requirements such as point of sale terminals, small inventories and better client support. This makes it advantageous as the company offers an opportunity for people to search for materials and databases wherever they are. Some of the services offered include books, DVDs, software, videos, lawn products, video games and kitchen pan. All items are available and can be uploaded to the shopping cart after which an online form is filled to indicate the type of payment required and shipment characteristics (Jones, 2011). The Amazon Company started by offering books after which it resulted to DVD/Video and music in 1998. By 1999, the Amazon.com auctions started featuring the current sothebys.amazon.com as well as the zshops. Other businesses include the electronics, home improvement, toys and video games among others. Such services and products relate to the goal of the company of becoming a customer-centric firm that allows its customers search and buy anything online. The company’s major competitors are eBay, Noble and Barnes among others. The company started an aggressive expansion policy in 1998 through use of the extraordinary amount of resources from market capitalization that allowed the company acquires various medium and small internet companies that supported the establishment of technological base for the customer (Ritala, Arash, & Alain, 2013). From an investor’s perspective, all the traditional financial and accounting analysis focuses on amassing huge profits, liquidity, low debt and asset turnover among others. Amazon Stocks Financials The Table 1 below shows the stocks in Amazon. The table gives the value for the opening stocks, closing stocks and the volumes. Table 1: Amazons stocks data Date Open Costs ($) High Costs ($) Low Costs ($) Close Costs ($)  Volume 1/2/2013 256.08 258.1 253.26 257.31 3271000 1/3/2012 175.89 179.48 175.55 179.03 5110800 1/3/2011 181.37 186 181.21 184.22 5331400 Figure 1: Amazons stocks trends The Figure 1 above shows that the opening stocks value was lower than for the closing stocks in the three years. The figure shows the stock prices decreased from 2011 to 2012 after which it increased significantly from 2012 to 2013. The eBay The eBay Corporation is headquartered in San Jose in California and comprises of two core businesses. The first has PayPal as the flagship brand while the second has marketplaces business with the eBay website and other international versions forms the major brand. Formerly, eBay had a third core business within the communication space that was acquired in 2005 to enhance the establishment of 500 million-user juggernauts. The majority stakes in eBay were sold to the consortium investors in 2009 but eBay retains minority interests for the platform (Lewis, 2011). The company was established in 1995 by Pierre Omidyar, who is the current chairman. He started the company while he was 28 years old and worked as an internet entrepreneur. The CEO and president of eBay is John Donahoe and took over from Meg Whitman in 2008. The eBay Inc has over 17,700 employees worldwide. The company went public in 1998. Currently, eBay enjoys a market capitalization of about $40 billion. The market place trading volume in 2010 was over $62 billion for the transactions while the payment processing volume was equivalent to $92 billion payment. The revenue rose to $9 billion in 2010 (Lewis, 2011). History, Strategy, and Market Position The position of the company in terms of e-commerce, payment landscapes and retail changes as the sectors evolve. For instance in 1998, the IPO took place during the dot com bubble where it was influenced by various forces which resulted to Internet IPO and other technology becoming (in) famous. The initial price in eBay of $18 encouraged a stable rise reaching over $58 per share in 2004, after which there was a steady decline. Initially, the revenue growth in eBay was 30 percent in a year, and this made the company become one of the winners in dot.com race. Recently, the annual growth has declined as the overall growth proportion increases from the payments business and ongoing reorganization process and strategic changes which characterize the business within the marketplace (Penfold, 2011). The declines have resulted from increased competition from major competitors, notably, Google and Amazon. The recent economic took toll, and this saw the falling of listing volumes, revenue, share price and profits from 2008 to 2009, before taking hold of the new strategic orientations in both marketplaces and core businesses. The changes which were implemented during the John Danahoes tenure became controversial with the fees structures and rules shifting accompanied by increased orientation to high-fixed price and high-volume retail channel selling which alienated the portions of the traditional community in eBay as the competitive landscape stiffened. The recent turnaround for the critical metrics was prefaced by restructuring of the 2008 and the matching of the layoffs that served the purpose for that moment (Penfold, 2011). The GSI Commerce acquisition by eBay in 2010 at $2.4 billion becomes the largest acquisition since the 2005 Skype acquisition. This signaled the move to core business area for retailing marketing and major brand for leveraging the client list as well as integrating it to the payments and marketplace strategy. Some of the prominent clients include the Adidas, Live Strauss, ToysRUs, Body Works and GNC among others. The giving works program within the company has made the company become socially conscious with various local contexts worldwide. Some of the major brand involved in sustainability and giving include the MicroPlace, which is a prominent microfinance platform, fair trade and financial trading platform and the eBay Foundation Opportunity Project that supports market driven development and promotes anti-poverty innovation. The most famous clients for GSI clients include Levi Strauss, the Adidas, ToysRUs, the Hewlett Packard, Radio Shack, the Bath and Body Works, the Ace Hardware, and GNC, among numerous others. The eBay Holdings The holdings and partnerships in eBay continue influencing the company’s trajectory for better and worse. The major holdings in eBay include GSI Commerce, PayPal, Kijiji, Gumtree, ProStores, Redlaser, Milo.com, brands4friends, Craiglist, EachNet, UnionMobile Pay, MercadoLibre and Half.com amongst others. The pioneer communities in eBay were built on e-commerce, inspired by opportunity and sustained by trust. This makes eBay to attract millions of client daily on international, national and local levels through an array of websites which focus on payments, communications and commerce (Penfold, 2011). The eBay Marketplace The marketplace in eBay provides a powerful platform for sale of goods and services through passionate individuals and businesses. The daily transactions are normally characterized by fixed-price action-style trading. Some of the major customers are in Asia Pacific, Europe and North America. Asia Pacific includes Hing Kong, India, Australia, New Zealand, Philippines, Malaysia, Singapore, Hong Kong and South Korea. In Europe, the major customers are Austria, France, Germany, Belgium, Netherlands, Italy, Spain and Poland. In North America, the customers are United States and Canada. Additionally, eBay is also in Latin America, with a major investment in MercadoLibre (Lewis, 2011). Services Offered by eBay PayPal PayPal was founded in 1998 but acquired by eBay in 2002. The service enables business or people with email addresses send and receive payments securing online. The service is build on existing financial infrastructure of credit cards and bank accounts and make use of the most advanced proprietary prevention system that create safe payment solutions and eliminate fraud. PayPal is currently the global leader in the online payment systems and is currently having tens of millions registered accounts with a wide acceptance worldwide (Lewis, 2011). Shopping .com This service pioneered the comparison shopping and is among the fastest growing internet destinations worldwide. The service entails selling of various products and supports million of merchants and reviews from Epinions community. The service empowers the customers make informed choices as well as drive value for the merchants. The shopping.com sites are in United States, France, United Kingdom, Australia and Germany. The service was acquired by eBay in 2005 (Penfold, 2011). Online Classifieds The design of Online Classified aimed at helping people meet trade and share ideas on the local basis. The online classifieds in eBay are availed through various regions and cities worldwide. Some of the classifieds include the Guntree.com, Kijiji, Intoko, Marktplaats.nl, mobile.de and LoQUo.com. Additionally, eBay owns minority investments in Craiglist (Lewis, 2011). The eBay Stock Financials Table 2: Stock Price Data for eBay Date Open Costs ($) High Costs ($) Low Costs ($) Close Costs ($)  Volume 1/2/2013 52.4 53.7 52.04 53.59 13798900 1/3/2012 30.83 31.5 30.76 31.34 10587900 1/3/2011 28.21 28.85 28.13 28.68 13156100 The data indicates that the stock prices were increasing from 2011 through to 2013, with the value for closing stocks being higher than for the opening stocks Figure 2: Stock Price Trends for eBay The Figure 2 above indicates that 2013 had the highest prices for the stocks. The values for both opening and closing stocks increased considerably from 2011 through to 2013. However, the closing stock value was higher than for the opening stock value. Comparison between Stock Status for Both Amazon and eBay Companies Table 3: Stock Status Data for Both Amazon and eBay Companies   AMAZON EBAY AMAZON EBAY AMAZON EBAY AMAZON EBAY Open Costs ($) Close Costs ($) Volume (No of stocks) Total Value Costs ($) 2013 256.08 52.4 257.31 53.59 3271000 13798900 841661010 739483051 2012 175.89 30.83 179.03 31.34 5110800 10587900 914986524 331824786 2011 181.37 28.21 184.22 28.68 5331400 13156100 982150508 377316948               2738798042 1448624785 Table 3 shows the comparison of the stock prices between eBay and Amazon. The opening stocks, closing stocks, volume and the total value for the stocks have been represented for the two companies. A close observation of the values indicates that Amazon had the highest value for opening and closing stocks while eBay had the lowest value. The figures below represent the comparison between open and closing values, and the stocks volume for January 2011, 2012 and 2013 for Amazon and eBay companies. Open Stocks Figure 3: Open Stock Value for eBay and Amazon Figure 3 above shows that the Amazon Company had the highest price for opening stocks as compared to eBay. The value was more than half across all the years from 2011 through to 2013. Closing stocks Figure 4: Closing Stock Values for eBay and Amazon Amazon had the highest value for the closing stocks. This indicates that each stock traded at a considerably higher price in Amazon than in eBay. Stocks Volume Figure 4: Stocks Volume for eBay and Amazon The Figure 4 above shows that eBay had a higher volume of stocks traded across all the years when compared to the Amazon’s. However, despite the eBay trading in more stocks volume, the lower value per stocks makes it still have a low total volume when compared to Amazon. The Table 3 above Indicates the total value for Amazon in stocks traded as $2738798042.00 while that for eBay is $1448624785.00, a difference of $1290173257 value. Investor’s Recommendation From the financial analysis above, it is recommended that an investor who is planning to invest in financial stocks to invest with eBay as opposed to Amazon. Reasons to Invest with eBay The company has over 88 million active clients making it to the largest online marketplace in the world where people buy and sell virtually anything. The company, therefore, connects passionate and diverse community of buyers, sellers and small businesses. This makes the company become one of the leading online marketplaces with various services and products offered. According to Peter Sheldon, eBay has been proven as an enterprise that provides a holistic suite of enterprise services and technology to leading brands and retailers beyond their core services and marketplace. Conventional wisdom has it that Amazon stocks are safer though eBay is making significant changes on its way of competition with other retailers. According to the data eBay, can be a better investment. The business is competing with Craiglist for the used items and Amazon for the new merchandise, making eBay own 25 percent stake in Craiglist. Stocks Projections Figure 5: Stock Price Projection for Amazon Based on present accounting rules, the projections indicate that the Amazon stocks will start to decline from 2014 onwards because of the introduction in new markets, as well as increased marketing expenses. The loss is expected to be $427 million, and the value might be higher than the forecasted amount as there have been declined sales in segments with high gross margins. By the end of 2013, Amazon had sent many products without incorporating the mailing costs to customers. This indicates that eBay can be a better alternative than Amazon. In 2012, eBay authorized a repurchase program for the stocks for up to $ 2 billion without expiration. By 2013, there was a repurchase of $1.3 billion and in January, there was a repurchase of $5 billion stocks. This offsets the dilution from the equity compensation programs. The shares in eBay are doubling, and the company is offering wider assortment of products than Amazon and is offering free shipping. This makes it lure more customers as the listing fees are also low improving the online search for its customers. The company has a higher-end section, not only for second hand goods, but the prices are also relatively lower than the Amazons. This makes it easier to buy goods on auction, especially when it is impossible through the fixed price. Though the shares in Amazon in the three years from 2011 to 2013 tripled while for eBay doubled, the relatively lower prices makes it easier for the purchase of the higher number of shares from eBay than from the Amazon. eBay trades at 16 times $1.5 per share while Amazon trades at 57 times the $1.64 per share. This indicates an overpriced Amazon level and eBay is, therefore, relatively easier to buy. References Jones, M. (2011). Bidding Fever in eBay Auctions of Amazon.com Gift Certificates. Economics Letters 113(1), 5-7. Lewis, G. (2011). Asymmetric Information, Adverse Selection and Online Disclosure: The Case of eBay Motors. American Economic Review 101(4), 1535-546. Penfold, R. (2011). eBay: Tweaks, Tips and Tricks. London: Bernard Babani. Ritala, P., Arash, G., & Alain, W. (2013). Coopetition-based Business Models: The Case of Amazon.com. Industrial Marketing Management 3(5) Read More