There is no doubt that e-commerce is wreaking havoc on the sales of brick-and-mortar retailers. More and more consumers do their shopping online and several companies stand to benefit from the trend. Amazon.com and eBay are two among them. Both companies have seen their stock prices climb considerably over the past year. Amazon share prices up 58% in eBay’s stock price are up 26%. Let's take a close look at these two e-commerce leaders to find out which is a better buy.
eBay may have been a pioneer in online shopping but it has struggled recently to grow sales on his properties. Gross merchandise volume grew just 9% in 2014 and has declined 1% last year. Through the first half of 2016 the volume is only up 1.6%. In comparison, Amazon sales are on fire. Sales grew 23% in 2014 and 25% last year. Internationally it saw more modest sales growth of 12% and 6% in 2014 to 2015. Through the first half of 2016, net sales are up 27% both in North America and internationally.
Amazon strong sales growth can be attributed to the success of Amazon Prime. The program has an estimated 49 million subscribers. One analyst expects half of the households in the country to subscribe to Prime. As a Prime member one spends 2 1/2 times as much on Amazon.com. eBay can't compete with Prime. The logistics of insight, orders received and fulfilled entirely by third parties make guaranteeing fast shipping impossible. It experimented with the system in Germany last year but nothing has come of it.
Both Amazon and eBay have secondary businesses outside of their main online marketplaces. eBay has StubHub and Amazon has Amazon Web Services, a cloud computing business. StubHub is going well this year after signing several contracts to become the primary marketplace for several teams such as the Philadelphia 76ers in Boston College Athletics. It also signed a deal this summer to become the official resale site for the New York Yankees tickets. StubHub sales of accelerated in each of the last three quarters and it is also a much higher margin business than eBay's main marketplace so its growth is very valuable to the company.
Amazon is seeing superior growth in its cloud computing business. After climbing 70% last year the sales are up another 61% in the first half of 2016. As with StubHub, AWS produces higher margins in the company's core business.
It is clear that Amazon is growing both its core and secondary businesses faster than eBay. Maybe eBay promo codes will get eBay ahead of Amazon. But if the market is asking too high the price, eBay can be a better buy. On a price-to-earnings basis, Amazon stock trades tuners six times trailing earnings. In comparison, eBay stock, trades for less than 20 times is trailing earnings. Analysts expect Amazon to grow a lot faster than eBay. eBay is only expected to grow earnings per share 5.7% annually over the next five years. Amazon was a growth rate of nearly 9 times faster may well deserve a P/E ratio of nine times higher.
Looking at free cash flow tells a similar story. Amazons price to free cash flow ratio is about 54, while eBay trades for just 15 times it's free clash flow. Amazon grew its free cash flow 36% while eBay saw its free cash flow decline 37% even though Amazon share prices climbed to an all-time high, the stock still seems like a better buy than eBay based on its growth and relative valuation.