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Could eBay Really Be Amazon’s Worst Nightmare?

Yahoo! Finance
The Exchange

Amazon (AMZN) shareholders should pay close attention to eBay’s (EBAY) first-quarter earnings, which were reported late Wednesday. Ebay, after all, is trying to give Amazon a swift kick where it counts.

Credit: Reuters

In a direct challenge to Amazon's lifeblood, the company is claiming to have conjured up a better, cheaper way to attract sellers of goods. And eBay is talking about big sellers, not peddlers of Pez dispensers and the like, the auction site’s modest old mainstay. While eBay’s price claims are open to some dispute (its estimates do not include the impact of PayPal, their payment processing division), eBay says their selling structure is simple and affordable and will give Amazon a reason to worry. Should Amazon really be sweating it?

Well, let's take a look at eBay's latest report as a part of the larger competitive picture. In the grand scheme of things, its first-quarter was no better than middling. Revenue was up 14 percent from a year earlier, to $3.7, and net income rolled in at 51 cents a share, a 19 percent increase. Problem is, both top and bottom line trailed expectations, as did second quarter forecasts of between 61 and 63 cents a share (excluding items, that is) on revenue of $3.8 to $3.9 billion. Analysts had their hopes set on 66 cents a share on $3.95 billion.

Not reeling, not revving

Clearly, eBay is not officially reeling – performance was solid enough. But with slowing growth rates hitched to tepid forecasts, the company – despite its good stock performance, up nearly triple in three years, almost 10% this year – is hardly revving on all engines.

In fact, PayPal, on which so many long-term hopes rest, reported a dwindling of sequential revenue growth. After titillating traders with revenue increases of as much as 32% a quarter last year, PayPal posted revenues of only $1.55 billion, a mere 18% increase.

Ironically, Amazon is successfully competing with eBay on the payment front. Turnaround, as they say, is fair play. But to the operative point: How well is eBay transforming itself into Amazon’s nightmare?

The stakes could not be higher. Amazon, after all, is forever given the benefit of the doubt for its sins and transgressions against profitability. The company is granted a high valuation, even though bottom line earnings never seem enough to sustain it. But to date, the company hasn’t seen much in the way of legitimate, sizable competition. Sure, there have been plenty of shin kickers, but few worthy competitors.

With considerable experience in delivering goods, ebay is really the first one with the Internet and delivery chops to give Amazon a run. And this is where the news gets better for eBay and worse for Amazon. Sales in eBay’s Marketplace division, which fixes that target on the back of Amazon, rose to $1.96 billion. That marked an increase of 13%, comfortably above the 11% standard set last year.

Moreover, eBay drew nearly 4 million new users to the site in the first three months of the year. The total number of users now stands at 116 million. Not too shabby. Fixed price merchandise – that means Amazon-style goods, not kooky, online thrift store junk – now amounts to 68 percent of goods sold. eBay has also positioned itself as a fount of innovative ideas in the mobile shopping arena.

There are, to be certain, others gunning for Amazon: Google (GOOG), for one. But while Google makes searches fresh every day, it has no clue how to actually deliver the goods.

The upshot? EBay’s earnings were not great. But, long-term, the bad news may have fallen on Amazon.

Marek Fuchs was a stockbroker for Shearson Lehman Brothers before becoming a journalist who wrote The New York Times' County Lines column for six years. Fuchs speaks regularly on business and journalism issues at venues ranging from annual meetings of the Society of American Business Editors and Writers to PBS to National Public Radio. His recent book, "Local Heroes: Portraits of American Volunteer Firefighters," earned widespread praise. He is on the writing faculty at Sarah Lawrence College. When Fuchs is not writing or teaching, he serves as a volunteer firefighter. You can contact him on Twitter: @MarekFuchs.