eBay Is Slowly Transforming Into Amazon, but it Will Happily Keep its Profits

It's now an open secret that eBay (NASDAQ: EBAY  ) has Amazon (NASDAQ: AMZN  ) -like ambitions, and has been giving the latter a swift kick where it counts. The erstwhile auction site has been undergoing a gradual makeover that has seen it slowly shed its former tag as a rather drab online site that peddles Pez dispensers and the like. eBay has become a formidable online marketplace with state-of-the art retailing concepts such as Same-Day Deliveries and Home Deliveries. The best part is that eBay's Marketplaces are not just other flash-in-the-pan, me-too services offered more as an afterthought, as the services have actually been delivering solid results and giving Amazon a run for its money.

Meanwhile, old brick-and-mortar retailers such as Wal-Mart (NYSE: WMT  ) , Target (NYSE: TGT  ) , and lately, Home Depot, have joined the same-day deliveries bandwagon too. But same-day deliveries might not work out quite the same way for these retailers like it does for Amazon or eBay.

eBay's Marketplace to compete with Amazon Prime
eBay has conjured what it sells as a 'better and cheaper' way to attract third party sellers in the form of a series of eBay Marketplace platforms such as and is designed to compete with Amazon's lifeblood, its Amazon Prime online service, that has proven hugely popular with Amazon shoppers. Amazon Prime shoppers typically spend two and half times as much as regular Amazon shoppers. Sales from the platform accounted for a good 10% of Amazon's $61 billion 2012 sales revenue.

eBay has not stopped here. It has taken the battle to Amazon's home turf by introducing the utopian retailing concept of same-day and home deliveries. eBay recently moved to bolster its same-day deliveries with a tie-up with Shutl, a U.K.-based start-up that has recorded considerable success with same-day and home deliveries.

eBay has promised its shoppers that it will take the game a notch higher in 2014 when it launches eBay Now across 25 cities in the U.S. eBay Now is all about perfecting the art of instant gratification. It will not only deliver goods to customer's homes on the same day they are ordered, it will also let customers delay the time of delivery until they are available to pick up their merchandise. A mom working at a 9-5 day job will order from eBay during the day while she is at work, and delay delivery of her goods until the time when she is finally home.

A little bit of gambling
Granted, it is still quite early to tell if eBay's gamble with same-day deliveries will prove to be a success for the company. However, CEO John Donahue recently pointed out that the company can afford to just break even with this service, since the company's biggest objective will be to grow its revenue. eBay will charge its customers a piddling $5 to use eBay Now, hardly enough to even cover the cost of the service.

Perhaps eBay has learnt from Amazon, which cuts the prices of its products to the bone in a bid to grow its revenues. However, unlike Amazon, eBay's high gross margins provide ample room for the company to gamble a little bit.

Revenue growth in the retail space seems to be a big determinant of share price. Share price gains for companies here seem to closely mirror their revenue growth.

Amazon and eBay have recorded the highest revenue growth over the years compared to Wal-Mart and Target. Their shares have also recorded the highest returns.

Old retailers are hard pressed to monetize same-day deliveries
However, brick and mortar retailers, unlike online retailers, do same-day deliveries for a different reason altogether. These companies primarily offer the service to avoid losing market share to other retailers that have it, not necessarily to grow their revenues. That's the main reason why Wal-Mart offers the service in only five locations where it says that the demand for the service is highest.  The cost of offering this service might therefore prove to be a huge drag on these companies' bottom-lines.

Wal-Mart has been leveraging its huge size, and has managed to outgrow its competitors despite facing similar conditions. Last quarter, Wal-Mart managed to grow its earnings by 7%, while Target suffered a huge 77% decline in earnings.

Target sales have taken quite a hit since news about its massive security breach hit news feeds. Its December sales declined 3%. Luckily for the retailer, its shares have only declined by 3% since then.  I had pointed out in an earlier article how the TJX Companies suffered a similar breach in 2007, yet the company saw its sales grow by more than 9% in the following quarter. Target still boats a 2.7% yield and good cash flow, and the company could still be a good investment.

Home Depot's plans to spend $300 to build fulfillment centers that will enable it to provide same-day deliveries for its customers. Home Depot arrived at the decision after it conducted studies that show that professional contractors would not mind quicker delivery services at a higher fee. Same-day deliveries are therefore quite likely to boost sales for the company.

Foolish bottom line
eBay has been nicely matching Amazon in developing online selling platforms for sellers. However, eBay has also distinguished itself from the latter in that it does not sell its own merchandise, and, therefore, it avoids competing directly with third-party sellers. This might be a huge plus in the eyes of its customers. And of course, eBay's profits have been much higher than those of Amazon. The company could potentially give Amazon sleepless nights as far as online selling is concerned.

But is eBay a great growth investment?
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Read/Post Comments (1) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 19, 2014, at 12:00 AM, krkkrk wrote:

    A no-brainer area that Ebay has been inexplicably absent from is digital goods and media.

    With Apple hamstrung with the DoJ eBook strictures, and publishers none too happy to be Amazon supplicants, Ebay has another shot by positioning itself as an unconflicted alternative platform for disgruntled publishers to sell both physical & digital books.

    It would be familiar, agnostic platforms that publishers and authors can embrace as an alternative to conflicted platforms like Amazon, Google and iTunes.

    All that a Publisher needs is a listing, search, review and payment platform, which is what Ebay is all about anywaty. As for retail shipping of physical books, this should deliver additional business to Ebay’s order fulfillment initiative like VendorNet and its partnership announced last year with FedEx.

    If this succeeds, the publishing industry has a fighting chance to reset their online sales channel to their wet dream “Agency” model with Amazon serving as merely an advertising and referral affiliate.

    Ebay ought to market itself aggressively to the publishing industry in this regard and even put out it own subsidized eBook reader/tablet which unlike the Kindle & iPad walled garden, can be an open platform like the Nexus with an attractive on-ramp to an Ebay strorefront for its merchandise and books.

    Pierre Omidyar. Are you listening?!

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2799931, ~/Articles/ArticleHandler.aspx, 8/31/2015 12:56:21 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Joseph Gacinga

Today's Market

updated 2 days ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:00 PM
AMZN $518.01 Down -0.36 -0.07% CAPS Rating: ***
EBAY $27.25 Up +0.15 +0.55%
eBay CAPS Rating: ****
HD $117.52 Down -0.14 -0.12%
Home Depot CAPS Rating: ****
TGT $78.03 Up +0.18 +0.23%
Target CAPS Rating: ****
WMT $64.94 Down -1.14 -1.73%
Wal-Mart Stores CAPS Rating: ***