eBay and Overstock Get Slammed, Is Amazon Next?

Shares of Overstock.com (NASDAQ: OSTK  )  plunged 12% Thursday after its earnings fell short of expectations by a penny. Such a hit for missing by a penny is indicative of the way the stock market is treating any misstep these days. Overstock said its net income rose 29.6% to $3.5 million, or $0.14 cents per share, from $2.7 million, or $0.11 cents per share in the same quarter a year ago. Analysts were expecting $0.15 cents. In addition, shares of online auctioneer eBay (NASDAQ: EBAY  ) fell 4% after announcing third-quarter revenue of $3.89 billion, falling short of the $3.91 billion that analysts predicted. Should the other player in this space,Amazon.com (NASDAQ: AMZN), not meet expectations on Oct. 24 its shares may get slammed, too.

Lack of results
"U.S. e-commerce softened considerably and we have a cautious outlook for the holiday season," Bob Swan, eBay's chief financial officer and senior vice president of finance, told investors in today's conference call. eBay reported third quarter net income of $689 million, or $0.53 per diluted share, up 16% from the same quarter a year ago, driven by revenue growth and the sale of investments in RueLaLa and ShopRunner. eBay saw tremendous growth in its PayPal business too.

The big drivers for all three of these businesses is shopping convenience and competitive pricing for online consumers. U.S. online retail sales are expected to grow 13% this year over 2012. Overstock, eBay and Amazon enable billions of dollars in e-commerce. 

Amazon and Overstock are well known for offering big discounts which can hurt  profit margins. Meanwhile, eBay has much stronger net profit margins. Here's a few key metrics for these companies:

Name P/E  Net Margin Debt to Capital Year-To-Date Return
Overstock.com 30.83    1.90%    0.00  80.78%
eBay.com 25.48   17.78%    0.18    0.75%
Amazon.com 362.72     0.21%    0.35  23.80%

One of the most impressive improvements at Overstock is average order size climbing 16% to $170 in third quarter 2013 compared with $147 during the same quarter a year ago. As a result, total net revenue for Q3 2013 was $301.4 million, up 18% from $255.4 million in third quarter 2012. Overstock also saw a 2% increase in orders.

Overstock's gross profit for Q3 2013 was $59.2 million, a 27% increase over Q3 2012. The increase in gross profit was primarily due to higher revenue and a shift in product sales mix into higher margin home and garden products, the company said.

The Amazon Mystique
Amazon has been a pioneer in online retailing since the mid-1990s and dominates as the largest online retailer. The company has been operating with thin margins for a long time. As a result, the company struggles to turn a profit. With 38 analysts covering Amazon, the consensus EPS estimate is -$0.09 per share loss, and the high and low estimates are $0.20 and -$0.32, respectively. Amazon is the big kahuna here, but Overstock and eBay are valued more cheaply based on fundamental metrics. Amazon has a strong balance sheet with $7.4 billion in cash and $3 billion in debt, so it can afford to discount, but at some point investors are going to want Amazon to improve its margins.

Conclusion
Overstock, Amazon and eBay are solid companies. Overstock has had a nice run-up this year of 80.78% year-to-date return through Oct. 17 while Amazon's stock is up 23.8%. But eBay stock has performed miserably, up less than 1% year-to-date while the S&P 500 is up 21.5%. 

Of the three online retailers featured here, Foolish investors might consider adding eBay to their portfolios. It's trading at a lower valuation relative to its peers. eBay has a 25 P/E ratio compared to Overstock's 30 P/E and Amazon's 362 P/E. Watch Amazon's third quarter report next Thursday as it will be interesting to see if the company meets expectations. It's also important to keep in mind that while the recently reported bumps in the road are unfortunate in the short term, its hard to imagine any of these business doing anything but performing well in the years ahead as consumers continue to shop more and more online. 

Given recent trends, what will the future of retail REALLY look like?
The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.


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  • Report this Comment On October 17, 2013, at 7:56 PM, mattmosa wrote:

    Is Amazon next?

    I view amazon as a ''made stock'' so who knows.

    What is known is that over the last three years combined fcf was 5B dollars or about 1.67 B per year and earnings were approx 581 M dollars per year.

    Accrual accounting, cash accounting which is more accurate? As far as I know, over the long haul the two accounts should be pretty close so why quibble over a couple hundred million bucks. I'm gonna say Amazon did about 1.12B per year avg. over the last three years.

    Now today you can buy those 1.12B dollars per year of earnings for the sale price of approx 142B dollars. Yup that's the deal. Additionally, Bezos is out on a buying spree buying up infrastructure from what I hear. This story is gonna take some time to play out I say.

    So lets see, I gotta pay 142B to make about a billion this year plus future growth of course. I gotta think about it because I'm not as young as I used to be.

    Umm, a John McEnroe quote comes to mind.

    YOU CAN"T BE SERIOUS, (with Mac conviction)

    Anyhow thats what I think. In any event I think Amazon will be a case study in efficient market theory no matter which way it trades from here, however, It will trade there without me.

    I have no position in the stock, short or long

    Good luck to all

  • Report this Comment On October 18, 2013, at 10:01 AM, ScoopHoop wrote:

    Thanks for your comment, MattMosa. I had opportunity to buy Amazon in 1998. I wish I would have, of course, but now it trades at a substantially higher multiple than its peers with almost no profit margin. I would much rather own a Hershey with 10.65% net margin on $7 billion in sales. Make good money plus get dividends. I think eBay has pretty good fundamentals and continues growing double-digit annually. I may consider buying ebay. But why has its stock price gone nowhere this year?

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