Is this going to be eBay's (NASDAQ: EBAY ) year -- again? After over a decade of living in the shadow of e-tail giant Amazon.com (NASDAQ: AMZN ) , the perennial second-place sales site is starting to get a bigger slice of attention from Wall Street and the tech press. And why not? For the first time in years, second-place eBay is taking first place in the race for returns:
| 2008 | 60.4% | (10%) |
| 2009 | 3.1% | (54.7%) |
| 2010 | 95.2% | 88.4% |
| 2011 | 23.5% | 17.2% |
| 2012 | 4.7% | 14.3% |
| 2013 | 47.1% | 61.4% |
Source: YCharts. *Period ends on April 15, so 2013 represents April 15, 2012 to April 15, 2013.
But what's behind this change in fortunes? Maybe it's because investors are realizing that a triple-digit P/E can't stand up for years and years. Maybe it's because PayPal is really the next big thing in payments. Or maybe, as a Wired piece published this morning suggests, eBay is taking control of the booming mobile e-commerce market. Wired suggests that eBay is capturing mindshare (and market share) in a number of critical emerging markets. It also suggests that eBay's total sales and payment processing volume will nearly triple by 2015, to $300 billion from the $175 billion in sales reported last year. Is that enough to get excited over? Let's see how eBay really stacks up:
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It's clear that eBay relies more on international sales than Amazon, but is it worth the excitement when Amazon is so much larger on both accounts? This only shows raw revenue, so I've taken these figures and calculated year-over-year growth rates. It looks better for eBay, but it's not enough to tilt the scales:
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eBay is moving in the right direction, but it's too soon to claim that the company is about to beat Amazon at its own game. Although eBay has pushed hard into mobile commerce, and now sees almost a third of its purchases come from mobile devices, that segment will still only account for about 15% of total e-commerce revenue this year. Of course, that's expected to rise in the future as more consumers shift their primary browsing and shopping habits from desktop to tablet or smartphone, but it would be rash to count Amazon out of this race.
The one thing eBay undoubtedly has going for it over Amazon is valuation. Compared to Amazon's negative P/E (and 76 forward P/E), eBay looks downright cheap. Free cash flow valuation metrics bring Amazon down to a more reasonable level, but that's still not enough to outdo eBay and its cash-spinning PayPal:
| Amazon, current | N/A (negative earnings) | 310.6 |
| Amazon, five-year average | 198.8 | 37.5 |
| Amazon, forward | 63.1 | N/A |
| eBay, current | 28.1 | 28.5 |
| eBay, five-year average | 22.3 | 19.0 |
| eBay, forward | 17.8 | N/A |
Sources: Wolfram Alpha and Morningstar.
Which e-tailer is a better investment? That depends on how you feel about Amazon's valuation, its long-term diversification goals, eBay's international prospects, and the likelihood that a competing payments processor will undermine PayPal in the next few years.
eBay's cheaper today, and it's justified its share price growth with solid fundamentals. Since its current valuations are all running ahead of its long-term averages, it's important to consider whether the company can show enough growth with its quarterly report this evening to justify another run like 2012's. Amazon may not be a great investment right now based on its outlandish valuations, but that makes it no less a threat to eBay's continued expansion. E-tailing is increasingly becoming dominated by a few major players, and the last thing Amazon will do is sit around on its hands while eBay scoops up more mobile consumers.
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