- Amazon is showing strong growth, but we are yet to see how they can capitalize on it to grow exponentially.
- eBay continues to squeeze money out of its sellers. Could that cause a lot of them to migrate elsewhere?
- Alibaba has suffered a period through which it has fallen short of expectations. However, with a strong thirst for acquisitions, it could bounce back strongly.
The ecommerce industry is fiercely competitive, and this is driven by the low barriers to entry. As a result, the attrition rate is high. It is therefore commendable for a company to not just just stay in the industry for a long period of time but also to be able to generate billions of dollars in yearly revenue. As it stands, the giants of the ecommerce industry on a global level are Amazon (NASDAQ:AMZN), eBay (NASDAQ:EBAY), and Alibaba (NYSE:BABA). Walmart (NYSE:WMT) has plans to be a big player in this arena; however, that is something which we will have to wait and see. It is worth noting that Walmart's economies of scale and relationship with suppliers makes them a formidable prospect if they can execute on their plans.
Amazon has a market cap of $289.3 billion (Oct 29th close), and is now the world's largest retailer after starting from very humble beginnings.
To put it in simple terms, Amazon has had an astounding year. Investors who invested in this ecommerce giant in January 2015 have gained over 100% on their investment. Amazon's domination of the ecommerce market is based on their constant innovation, good customer service, exceptional execution, and a view towards 'trimming the fat' and increasing profitability.
The New York Times published an article earlier this year which showed the amount of pressure Jeff Bezos places on his employees. There was an uproar when the findings were published; however, this quest for perfection reflects well on their bottomline.
Amazon's latest earnings call was a welcome surprise to investors. They were expected to announce a loss; conversely, profits were reported at $79 million. This isn't huge but Amazon isn't usually profitable. Moreover, sales shot up by 23%. The market responded with a 7% increase in Amazon stock price.
Moreover, Amazon's popular AWS offering had an operating margin of 25%. As a result, this boosted investors confidence in Amazon. Additionally, it is worth noting that these impressive numbers came without the all-important festive period.
It is also worth noting that a well executed 'Prime day' added 2% to their bottom-line. This is vital to the future profitability of Amazon, because Prime subscribers are more likely to be repeat buyers.
The good fortunes of Amazon mean that Jeff Bezos is now the 5th richest man in the world- which is a nice bonus.
eBay has a market cap of $34.41 billion (October 29th close)- which is much smaller than Amazon's. However, it is worth noting that eBay doesn't own the products it sells. As a result, its performance is volatile compared to that of Amazon. As an ecommerce platform, it struggles to maintain a consistent customer service experience for its buyers. There is a sentiment among some consumers that eBay is a 'riskier' place to buy as compared to Amazon. Therefore, eBay is more affected by competition, and market forces than Amazon.
eBay's stock price more than halved in July 2015 when it was revealed that eBay was under performing in some key metrics. Moreover, the sellers on eBay are the lifeblood of the company; however, the increasing costs of doing business on eBay means that sellers are forced to operate on very tight margins. For casual sellers, the costs can be a turn-off.
It seems that eBay has the strategy of milking its sellers for as much money as possible. At the end of the day, putting a popular product for sale on eBay almost gurarantees eyeballs. Therefore, eBay is a great place for buyers to gain exposure. However, the high costs are forcing many sellers to sell their products on their own websites. It isn't unusual to receive a package from a seller which includes a discount for your next purchase so long as you buy it on their own website.
eBay's stock climbed 9% on the 21st of October 2015 due to a stronger than expected third quarter. However, eBay's longevity in the industry will be based on its ability to manage its seller and buyer relationships while improving its core product. At the moment, the unique selling point of eBay is unclear, because Amazon offers low prices, fast shipping, and an unparalleled customer service.
eBay has some weaknesses which inhibit its chances of being a strong candidate for long term growth. These are as follows:
--- There is an opportunity for eBay to provide more services to its business sellers while increasing their own bottomline. For instance, they could handle the storage of stock and charge sellers for the priviledge.
--- In Europe, Gumtree is a viable option for sellers. Fortunately, eBay owns Gumtree. It would be nice to see more of Gumtree's business model integrated into eBay's main ecommerce offering.
--- eBay doesn't own the products it sells, unlike Amazon, which continues to grow in terms of acquisitions, products, and services.
Alibaba arguably had the most eagerly anticipated IPO in history. To give you a measure of the level of anticipation, two months after Alibaba went public on the New York stock exchange, its market cap stood at $294 billion. The euphroia surrounding Alibaba was based on the fact that they were a giant in the Chinese market, and China had a healthier economy last year, with a growing middle class. However, Alibaba halved in value by September of 2015.
Importantly, the company continues to strive to diversify its investments, and has made investments in sport, healthcare, and entertainment. The grand plan is for Alibaba to hold investments in a variety of industries which it can then leverage to grow their core products.
One of Alibaba's core products is Aliexpress which is an eBay-esque site for delivering relatively cheap goods to the public. The issue is that Aliexpress is fairly [un]popular for being the Mecca of counterfeit goods. As a result, Alibaba has been hit with lawsuits. Unfortunately, there is little action to 'clean up' the site because of the demand for such goods.
In its quest for growth, this Chinese ecommerce giant has left many stones unturned. For instance, it is vital that it rids the site of counterfeits so that it can grow more internationally. This is due to the fact that Western consumers are less open to the notion of buying from a site on which the authenticity of goods is questionable.
Additionally, Alibaba's diversification plans scream of a drowning man clutching at straws. They need to show investors that they can be incredibly profitable. However, their core products could do with more polish. After all, one cannot build a multi storeyed building on a weak foundation.
In conclusion, Amazon continues to be the biggest giant of the e-commerce industry. On the other hand, eBay has a lot of untapped potential, which could make it a more formidable opponent. Alibaba needs to do more to solidify its core products before going on an acquisition spree. The rapid 'scattergun' approach rarely works, and besides, from an investor perspective it can take a while to see growth in terms of dividends.
No one really knows how big Amazon could get. Walmart is looking to get in on the action- but it could be a case of too little too late.