It might be hard for some to believe that Amazon.com (AMZN +1.61%) and its huge growth and seemingly world dominating aspirations could hope to be any other company. However, it's hard to look at eBay (EBAY +2.36%) and not wonder if Jeff Bezos envies what he sees. In fact, if we look at eBay's last earnings report, there are at least three reasons to believe Amazon wishes it were eBay.
Fast growth at a relatively cheaper price
It's pretty easy to compare Amazon to a company like Best Buy (BBY 2.94%) and argue that Amazon is the superior operation. Given that Amazon reported 20% sales growth in its most recent quarter, whereas Best Buy reported sales were down nearly 3% over the holidays, the comparison is stark indeed.
Growth investors would argue that Amazon deserves a premium valuation to Best Buy. However, if we look at eBay compared to Amazon, the argument for the Amazon premium is a little harder to swallow.
Amazon grew its sales 20% annually whereas eBay's revenue increased by 13% compared to last year. Some might assume that Amazon is the clear winner. However, eBay's business is very different from Amazon. eBay connects buyers and sellers but doesn't sell the goods itself.
A better comparison might be eBay's "enabled commerce" growth which increased 22% versus last year. Since eBay ultimately is in the business of enabling commerce, this 22% growth rate is very similar to Amazon's sales growth. The difference is, using projected earnings, Amazon sells for a forward P/E that is nearly 10 times that of eBay. With similar commerce growth, it seems either eBay is undervalued or Amazon is being overvalued; either way, Amazon should wish it were eBay.
Upwardly mobile
It's rare to read an earnings report about a technology or retail company and not have some discussion about online or mobile sales. We already know that Amazon and eBay are growing quickly, but the comparison with Best Buy's online sales is becoming more difficult.
A year ago, Best Buy's online sales only increased 10% and neither eBay nor Amazon had anything to worry about. However, over the nine week holiday season, Best Buy indicated that online sales jumped more than 23%. The difference is, where Amazon and Best Buy do very well with online sales, the second reason Amazon might wish it were eBay is eBay absolutely owns mobile sales.
In fact, eBay said that 40% of its new users came from mobile, and that mobile commerce grew by 88%. While Amazon and Best Buy don't break down what percentage of their sales are on mobile devices, there is one thing that eBay offers investors that neither of these peers can match.
PayPal is now 40% of eBay's revenue stream. For those who believe this is nothing more than an additional eBay service, consider that PayPal's off eBay mobile payments jumped 128% on a year-over-year basis. With customers obviously trusting PayPal outside of the eBay universe, Amazon wishes it had this weapon in its arsenal.
Flashing the cash
The third reason Amazon might wish it were eBay, is the latter's business model is built to generate cash flow. While Best Buy struggles to compete, the company still managed to generate $344 million in core free cash flow (net income + depreciation-capital expenditures) in the last nine months. However, it took just over $28 billion in sales to produce this result, meaning that Best Buy generated only $0.01 in free cash flow from each dollar of sales.
In the current quarter, Amazon produced $322 million in core free cash flow. Though Amazon produced almost as much free cash flow in three months as it took Best Buy nine months to generate, it also required a similar level of sales ($25.6 billion) from Amazon. In the end, Amazon kept about $0.01 in free cash flow from each dollar of sales as well.
eBay is playing in a different league than its peers. In the last three months, eBay generated over $900 million in free cash flow on just $4.5 billion in revenue. With the company producing about $0.20 of free cash flow for every dollar of sales, eBay's cash flow is superior in every way.
Given eBay's strong mobile growth, significant enabled commerce growth, and huge free cash flow, investors would be right to wish this stock were in their portfolio. Though eBay and Amazon are very different businesses, I'm sure Amazon wishes it were eBay from time to time.
