eBay Is Shipping Profits Your Way

Nothing moves faster than technology, which means companies don't have time to stop and smell the roses. They need to stay innovative or get left by the wayside. For a while it looked as if online auction site eBay (Nasdaq: EBAY  ) would be forced to eat its competitors' dust, but last week it introduced a new program that may just keep it moving a step faster than its rivals.

Get it now
Earlier this week, eBay began testing a new service that could mean big profits: same-day delivery.  Currently, the service, called eBay Now, is only being tested in San Francisco; users have to buy something that costs more than $25 from a local store and must pay $5 for shipping for the same-day service. Users must also make purchases between certain times of day: 9 a.m. to 9 p.m. Monday through Saturday, and 9 a.m. to 6 p.m. on Sunday. However, the large number of stores participating in the service, including Macy's, Target, and Best Buy, may make up for the potential time inconveniences by providing a wide selection of available products. 

Living in the now
There are some obvious benefits to Now for eBay, not the least of which is the potential to revolutionize the way businesses ship products. But first, Now must become a success in the Bay Area, and for that to happen, eBay will have to build up its supply chain to make same-day delivery a reality across the country. This means building warehouses in major metropolitan areas, as well as establishing a supply network of trucks and aircraft. Even if eBay accomplishes this, there's no telling whether the Now service will be available to people living in rural areas. However, if eBay can deliver (pun intended), the company stands to profit greatly.

Speaking of profit, one has to wonder how eBay will make money from its same-day-delivery program. Perhaps eBay plans to let the Now program be a loss leader, bringing business in to other segments of the company. One portion of eBay that could potentially see huge returns from Now is PayPal.

PayPal has taken the Internet by storm, giving merchants easier methods to accept payment than the old-school credit card companies ever did. It only makes sense that eBay would use this to its advantage and perhaps offer Now to PayPal customers as an added bonus. In this way, eBay can send more traffic to PayPal and collect more transaction fees.

Same same-day delivery
If eBay's Now service sounds familiar, don't be alarmed; Amazon.com (Nasdaq: AMZN  ) offers the same service in the form of its Local Express Delivery program. Luckily for eBay, Amazon's program is still in its infancy; it's available in only 10 U.S. cities and costs more per order ($8.99) than Now.  

That doesn't mean eBay can rest easy. Amazon has been ramping up its supply chain all over the world recently, building new warehouses in major metropolitan areas so that it can deliver goods to customers faster. The company has also escalated the use of it warehouse worker robots with the purchase of Kiva Systems. The robots create a potent combination of lower costs and better efficiency within Amazon warehouses, which will help boost the company's operating margin. If there's any company capable of competing with eBay over same-day delivery, it's Amazon.

Back to our regularly scheduled investing
As fascinating as all this is, what does it mean for an investor like you? It means that eBay is getting in on something potentially huge and is making sure it doesn't get left in the wake of its rivals. Don't let the focus on innovation fool you, though; eBay hasn't forgotten about the bottom line, and it shows in the company's latest earnings report.

According to the July report, eBay increased revenue 23% to nearly $3.4 billion, with PayPal's revenue increasing 26% year over year. eBay's main feature, the eBay Marketplace, had its strongest growth since 2006, while PayPal Mobile is expected to double its transaction volume by the end of this year. With a P/E of 15.80, well below the industry average of 44.70, eBay looks pretty cheap right now.

What should you do now?
eBay isn't the first company to provide same-day delivery, but it has the potential to be the best. With the large number of companies in on eBay Now, the service could become another option for people who don't want to have to pay for an Amazon Prime subscription. In the fast-moving world of technology, eBay may have just made a march on its competition.

eBay and Amazon aren't the only companies revolutionizing the retail sector. We here at the Fool have identified a third company that is changing the way businesses do business. This company has millions of registered members, a no-frills business model, and a cash conversion cycle that basically prints money. You can find out all about this company in our special free report, "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." 

Fool contributor Mark Reeth doesn't own any of the stocks mentioned, but he thinks it would be pretty awesome to order something in the morning and receive it later that day. Follow him in all his adventures on Twitter, @ChristmasReeth. The Motley Fool owns shares of Amazon.com and Best Buy, and our newsletter services have recommended buying shares of Amazon.com and eBay. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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