eBay (NASDAQ:EBAY) is not the most exciting growth story in e-commerce; that position is clearly reserved for Amazon (NASDAQ:AMZN). On the other hand, eBay stock is trading at fairly attractive valuation levels, and recent data from ChannelAdvisor suggests that it is making progress in terms of accelerating growth. Does this mean that now is a good time to invest in eBay?
The e-commerce underdog
eBay comes way behind Amazon in terms of both size and growth. Amazon produced $107 billion in revenue during 2015, with sales growing 20% in U.S. dollars, and by an even stronger 26% in constant currency. eBay, on the other hand, produced a much smaller $8.6 billion in annual sales, and total revenue declined 2% in U.S. dollars during 2015. For 2016, eBay management is expecting a modest increase in constant-currency revenue of between 2% and 6% versus 2015.
Amazon is a voraciously competitive business. The company has inflicted damage on brick-and mortar retailers in different product categories, especially in electronics and general merchandise. Competing against Amazon is a challenging task for eBay, and everything indicates that Amazon will retain its position as the industry king over the foreseeable future.
The good news for investors in eBay is that this is already incorporated into its valuation. eBay is trading at a price-to-earnings ratio of 17, a discount versus nearly 23 for the average company on the S&P 500. Industry leader Amazon is priced at a price-to-earnings ratio near 440, and according to data from Morningstar, the average company in the industry trades at a price-to-earnings ratio of nearly 30.
Even if eBay is no match for Amazon in terms of growth, the company doesn't need to deliver that kind of performance for eBay to be a solid investment idea. The stock is priced for modest expectations, and management has ambitious plans to jump-start growth.
eBay seems to be making progress
The company is working on improving performance in several different areas. eBay is making the selection of products included in its search results more structured and predictable, prioritizing quality above quantity. The company is requesting more data from sellers about the products and building better catalogs with pictures and other relevant information. The main idea is to make the shopping experience more comfortable and enjoyable for customers by improving product discoverability and offering better information about each particular product.
The company is also building better tools for sellers. eBay's marketplace platform generates large amounts of data, and the company is leveraging that information to show sellers which particular products are selling better than others on the platform, and how to implement the right pricing strategies based on the supply and demand trends. If sellers can deliver what customers really want, then both buyers and sellers get more benefits from the platform, and eBay makes more money because of increased activity at both ends of a transaction.
According to data from ChannelAdvisor, eBay has seen its sales increase over the last couple of months. Based on these estimations, eBay's same-store sales grew in February by 9.5% over the same month last year. After adjusting for the fact that 2016 is a leap year, however, the increase is a much more modest 5.3% -- though, it's worth noting that that's still an improvement from the 4% gain in January.
eBay is still growing at below-average rates, the overall increase in same-store sales in the e-commerce industry was 15% in February, and Amazon registered a stronger increase of 16.6% during the period. Nevertheless, the main point is that eBay seems to be making progress, and growth has accelerated over the last few months.
It's probably too early to tell if eBay is on a sustainable path to enhanced performance, or if the positive data from ChannelAdvisor is only a temporary improvement. But the fact remains that management is implementing multiple initiatives to speed up sales growth, and the stock is attractively priced at current levels. If data over the coming months confirms that eBay is in fact on the right track to improved performance, then the stock offers big upside potential from current levels.
Andres Cardenal owns shares of Amazon.com. The Motley Fool owns shares of and recommends Amazon.com and eBay. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.