Amazon vs Ebay

Comparing Amazon and eBay is really like comparing apples and oranges. The two, while appearing to be the same on the surface, are really nothing alike once the superficial labels are peeled off. eBay began as a C2C ecommerce site -- consumers selling to consumers. That gradually morphed into B2C as businesses (from big time car lots to small business owners) saw the advantage of posting items on eBay in order to boost sales.

Amazon may appear to the untrained eye to follow in eBay's footsteps by offering a web-based platform where all sorts of sales strategies can be employed: C2C, B2C, B2B -- and yet Amazon's ability to dominate the online marketplace has not resulted in significant income -- at least not from this particular eBay-like niche.

(Minus the platform, the two are not even similar in terms of how products are sold: eBay offers bidding and direct correspondence between vendor and customer; Amazon itself acts more as the middle man, allowing vendors to post on the site so that customers can shop). Amazon's core money-maker is in cloud services -- not in transactions between a vendor selling drapes to a customer, or a consumer purchasing books online, for example.

Amazon is everywhere and is generally regarded for having ushered in the demise of the American mall -- the traditional brick and mortar store. eBay is not credited with this. Yet what money Amazon does make, is not generated via the platform that eBay essentially pioneered, though demand at Amazon is less price-elastic than among competitors like Barnesandnoble.com (Chevalier, Goolsbee, 2003). Amazon is carving out its own path -- behind the ecommerce facade. Yet, if Amazon is ever to be profitable, it has a long path forward.

Synopsis Amazon was founded in 1994 by Jeff Bezos, who began his ecommerce site by focusing on the top five products that could be sold via the Web: videos, books and CDs along with computers (hardware and software) were the keys. Thus, the site began as an online bookstore in the same way eBay began humbly as an online garage sale store in 1995 (its original name was Auctionweb). Thus, while Amazon envisioned itself as a retailer, eBay envisioned itself always as an online auction site.

Over the years, both sites have grown to appeal to producers of virtually everything. In fact, the only items not traditionally sold on either site are liquor/adult materials. Major suppliers are anyone who has merchandise to sell as far as Amazon is concerned -- but the main sales items remain relatively unchanged; Amazon has however ventured into acting as a streaming service -- like Netflix or Hulu -- and is essentially attempting to do everything that any other online business does.

(It even recently got into the mortgage business through a brief joint venture with Wells Fargo). eBay's major suppliers range from anyone with an item that will ship to small and even large business owners. Customers are the same -- though Amazon is now selling cloud space to clients -- which accounts for its actual income in recent quarters.

Three Profitability Ratios Three profitability ratios that creditors may be interested in are: 1) P/E ratio -- copmany's share price over its per-share earnings (the lower the P/E, the cheaper the stock is viewed to be), 2) the net profit margin (Net Margin = (Net Income or Loss) / Sales). For Amazon, this is a hard ratio to apply as the company has dipped its toes into so many sectors -- it is doing cloud services, retail, streaming, and now brick and mortar pop-ups. For eBay it is more applicable.

3) the return on assets is another profitability ratio that might interest creditors -- and both apply to Amazon more than they do to eBay. The P/E ratio of Amazon is high. Its stock trades at a 189 P/E as of today, well over the average P/E for the Nasdaq, which is 24. Thus, Amazon is very expensive. The P/E ratio for eBay is much more in line with the average, sitting at 19.

Thus, of the two, eBay is the less risky investment for a creditor according to this ratio. The net profit margin ratio applied to Amazon shows that the company is becoming more profitable, thanks to cloud services -- but overall, the ratio is still dismal at a low 1.60% for the last quarter in 2016 ending June 30. A year ago it was -0.20%. So the company has progressed. eBay's net profit margin for the last quarter in 2015 was a much higher 20.08%. Amazon's ROA at the end of 2015 was 0.91%.

eBay's was 9.7%. Thus, according to every ratio, eBay comes at as the more attractive investment and the healthier company. To improve the ratios, eBay can simply continue what it is doing, marketing itself as the premier online auction site -- and expanding to include homes, which other sites like auction.com are now doing.

Amazon must get its P/E down and its other ratios up -- and it must do this by narrowing its focus; and yet it cannot because the appeal of Amazon is that it is everywhere doing everything. Management will need to decide how much longer it can go on before the end becomes all too clear. If cloud services can carry the company, Amazon may be able to survive as the de facto online retailer, one-stop shop for all things.

Two News Events One big news event for eBay was its split from Paypal. Shareholders were compensated and both companies kept the public well-informed of the break-up between the two long-together businesses (Dipietro, 2009). According to leadership for each, the split simply made sense for both entities to pursue their own unique business plans -- they no longer needed to be tied together. Creditors responded favorably to this split and currently the company's stock price is at an all-time high.

For Amazon, a big news event was Amazon's web services subsidiary which boomed in 2015, surpassing expectations with a 28.5% operating margin and a 64% increase in net income year-over-year in 2016 (Statt, 2016). Amazon's web services (AWS) have allowed the company to appear like a real player in the dotcom sector at last.

AWS has helped Amazon's stock price climb to new heights as investors and creditors showed a positive reaction to the news, as the company's web services begin to distinguish themselves -- a necessary step in a crowded field (Curbera, 2007). Both news items have thus been good for the company's respective businesses. Income Statement eBay's gross profit in 2015 was 6.8 billion USD. Amazon's was 35.5 billion USD. Amazon's operating loss was 2.2 billion USD. eBay's was 2.2 as well. eBay's net income was 1.725 billion USD in 2015.

Amazon's was 600 million USD. Clearly eBay's margins are much higher -- its Internet services more focused, more streamlined, more precise. Amazon aims to do everything and be everywhere. Its margins as a result are extremely low and the only reason it did not lose money in 2015 (as it did in 2014) is the fact that AWS exploded onto the scene raking in huge profits. If AWS can continue to grow, it could save Amazon from collapsing under its own weight as it attempts to conquer the world.

Judging by 2014's income, Amazon was not in a good place, having reported negative net income of -241 million USD. eBay for 2014 reported net income of 46 million USD -- down significantly from 2.8 billion USD for 2013. With neither company really lagging at this point -- both reported positive income for 2015, with eBay reporting more than Amazon, it can be suggested that Amazon focus more on AWS to.