A smart Wall Street Journal piece today on eBay (EBAY) dropped in a very surprising statistic: since 2000, eBay’s sales have grown at a faster rate than Amazon’s (AMZN).
It’s true, but at the five- and ten-year marks, Amazon is shown to grow faster, and revenue growth relative to Amazon isn’t the reason to like eBay.
Profits and the quality of its business franchises are what’s to like.
Amazon has seemed to forsake profit for revenue growth in recent years (you decide for yourself if that’s because of some wise, long-term strategy by CEO Jeff Bezos; or if, given that the market seems to value Amazon on revenue growth, there was little choice unless he was willing to trash his stock). Slashing prices to keep revenue growth, Amazon has become the Suicide Bomber of Retail, ruining competitor margins, like at Best Buy (BBY), but it’s own, as well. Along the way, Amazon’s productivity, by one measure, has slipped, and its employment has soared.
But eBay has two main businesses – the sale of stuff over its original platform; and PayPal, the payments processor – that both enjoy lush gross margins from the collection of fees. The most charitable view of Amazon is that it’s still building its business, and there are big profits to come. The clear picture at eBay is that it’s still building its business, but the one that exists today is plenty profitable. And there seems little reason to think margins would collapse going forward.
So, eBay’s trading at about 23 times forward projected earnings and at a PE ratio, based on trailing results, of about 27. Like growth stock. Amazon trades at a ridiculous multiple of profits, when it has some.
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