A
very interesting article via MSN Money. I've
abandoned Ebay (EBAY) as an investment many years ago as it's now a "value play" instead of growth, but have always said I'd love to get a piece of the action of
PayPal if they ever spun it off in it's own entity. It's essentially a
Mastercard (MA)/VISA (V) clone. It is now up to 1 of every 4 dollars of revenue for
Ebay and why they don't create value by doing a PayPal IPO is beyond me.
Amazon.com (AMZN) on the other hand has some interesting things going - they are a player in "
cloud computing" and now this, a frontal attack on
PayPal?
Hmm... that makes them quite appealing to me, I just wish the valuation was significantly lower. We were hoping for a miss from
Amazon.com last earnings report [
Jul 22: Amazon.com for Gamblers] so we could get in far cheaper, but the company "
disappointed" us by reporting solid numbers. The charts of the 2 companies over the past year, show the divergence.
- Since the dawn of Internet shopping, bargain hunters have reveled in the thrill of the hunt for deals at eBay (EBAY, news, msgs), the online equivalent of an auction house. But the thrill is going, going, almost gone. And eBay's losses are Amazon.com's (AMZN, news, msgs) gains in this battle to sell the most stuff on the Internet -- a battle that is about to take a turn for the worse for eBay.
- Busy shoppers are already skipping eBay's time-consuming auctions, which they might lose at the last second when a computerized shopping bot slips in a bid. Instead, they're opting for "everyday low prices" via the Internet and, in particular, at Amazon.
- Amazon, once just an online bookstore, is easy to use, and it offers a range of products along with good prices and cheap shipping. You're more likely to find rare and obscure items via Amazon these days than ever before, as the retailer has opened its site to more than a million outside merchants. Those often small merchants might otherwise be setting up virtual eBay stores.
- Now Amazon is taking aim at eBay's remaining jewel: its PayPal payment system. With Amazon already stealing potential sellers as well as buyers, trouble with PayPal would be another huge hit to eBay. And for investors, that makes Amazon the retailer to buy now.
Here is a comparison of metrics between the 2 companies last quarter- Amazon's sales jumped 35%, and that's after the impact of currency changes was stripped out. In contrast, eBay's revenue was up just 13%.
- In North America, Amazon's revenue was up 35%, or nearly three times the growth in overall Internet retail sales tallied by comScore. In contrast, eBay's North American revenue grew 12%, simply in line with the market.
- Amazon finished the quarter with more than 81 million active customers, up 18% from a year ago. The number of outside merchants on its site also grew 18%, to 1.42 million. In contrast, active registered users at eBay crept up only 0.7%, to 84.5 million. For the past five quarters, the number of active users at eBay has shrunk or grown by less than 1%.
- Amazon's global page views increased 4% in June, while eBay's were down 11. Visits to eBay's U.S. Web site have been down in nine of the past 11 months.
On to PayPal and the new threat- The biggest significant source of growth inside eBay is the payment-services division known as PayPal. It's used by eBay buyers and sellers, and by outside Web sites, to handle payments for purchases.
- PayPal revenue jumped an impressive 34% last quarter, which explains why analysts such as Youssef Squali at Jefferies consider PayPal to be eBay's jewel. PayPal contributed 26.4% of revenue in the quarter, up from 23.7% a year ago.
- But late last month, Amazon began offering its payment technology to outside merchants for use at their own Web sites.
- Can Amazon really take down PayPal, which is deeply embedded in online retailing with more than 62 million users? Skeptics cite the failure of Checkout, a Google (GOOG, news, msgs) payment system, to make any inroads as a reason to write off Amazon's attempt. If Google can't beat it, who can?
- But unlike Google, Amazon already has a relationship with millions of consumers. "We think that the competitive threat to PayPal may be much more serious this time around, given Amazon's e-commerce expertise for more than a decade," Deutsche Bank analyst Jeetil Patel says. "Amazon's customer base is roughly 80 million consumers, the bulk of which enjoy a highly trusted relationship with the company around payments."
- That's not to say millions don't trust Google. But there's a difference between using a search engine to look up old high school buddies and turning your private credit card information over to a company that keeps it on file for future transactions. That second relationship involves a lot more trust.
- Plus Amazon's system is easy and convenient, which should cut down on the number of buyers at partner sites who drop a purchase midway through because they get fed up with filling out forms. Customers can store data such as credit card numbers and addresses with Amazon and retrieve them at any store using their system.
- Goldman Sachs (GS, news, msgs) analyst James Mitchell thinks that in time Amazon may up the ante by offering discounts to merchants for transactions that transfer money from places other than credit cards, such as bank accounts. Those kinds of transactions are cheaper to process. Amazon could pass the savings on to merchants, something PayPal does not do.
Other- Amazon is a lot more than just a Web site, though that's all it may appear to be for most consumers. It has more than 30 "fulfillment centers" around the world. It collaborates with outside merchants by letting them ship pallets of goods to these Amazon locations, to be sold and shipped through Amazon's network.
- Amazon also has a division that assists outside merchants in developing their own Web sites.
- For its next acts, Amazon is challenging Barnes & Noble (BKS, news, msgs) with its Kindle electronic book gadget and Netflix (NFLX, news, msgs) with its rollout of downloadable movies.
Long Mastercard in fund; no personal position
