Will Amazon And EBay Outperform In This Holiday Quarter?

  • eCommerce growth will be robust going into the holiday season.
  • eBay and Amazon should be able to meet analyst consensus revenue estimates for the quarter.
  • Fundamental concerns still linger; hence, both companies have a neutral rating.

This holiday season is expected to be a strong one from prior years. In the United States the amount of revenue generated by holiday season ecommerce is expected to reach $61 billion on 16% year-over-year growth, according to ComScore.

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Source: comScore

Growth in mobile commerce is expected to be 25% for Q4 2014, which is driven by millennials who tend to be more technologically savvy. Obviously the beneficiaries of this are Amazon (AMZN)Groupon (GRPN), and eBay (EBAY), as the three companies should be able to drive pretty significant volume from both mobile and desktop.

While growth is expected to see some modest acceleration, it’s not too much from prior years. Factors contributing to ecommerce growth are falling oil prices, paired with improving consumer sentiment. The beneficiaries of a strong holiday season are eBay and Amazon.

12-4-14 AMZN pic 2

Source: eMarketer

Currently, the penetration of mobile among millennials is 82.8%, and is expected to reach 98.2% penetration by the year 2018. Obviously, the amount of Amazon revenue and eBay revenue from mobile will grow significantly, as the amount of e-commerce volume will improve as a result of a larger installed base of mobile users.

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Source: comScore

Currently, every age demographic engages in mobile shopping. Mobile has 83% penetration in the 18-24 demographic, and 89% penetration into the 25-34 demographic.

12-4-14 AMZN pic 4
Source: eBay

eBay’s revenue growth (See: eBay revenue chart) has steadily slowed over the past couple years, as it is difficult to sustain sales growth due to an increasing base. However, the company will most likely exceed or reach the high-end of its revenue outlook range for the quarter, as broader ecommerce trends look favorable for eBay.

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Source: Amazon

Going into the holiday season, analysts anticipate that Amazon’s consolidated revenue will grow by 16.3%. This rate of growth looks somewhat attainable, given ecommerce growth in the United States is expected to be 16%, and international growth will likely be higher than that.

Amazon and eBay are extremely sensitive to reaching analyst consensus sales targets. But given the favorable economic dynamics, and greater mix-shift of sales from brick-and-mortar to ecommerce over the black Friday weekend, the likelihood of an earnings/revenue miss have significantly diminished.

Admittedly, eBay’s GAAP earnings aren’t that great due to higher taxes from repatriating cash from foreign operations, which elevated the effective tax rate for the current fiscal year. There’s still on-going confusion over which part of eBay has more intrinsic value, and whether the spin-off of eBay makes sense strategically.

Amazon's profitability has been a constant worry. The company doesn’t generate any earnings, and it’s not likely to anytime soon. Amazon is very aggressive about expansion, which requires heavy spending in terms of operating expenditure, and capital expenditure. This trend won’t abate anytime soon, which diminishes the prospects of share buybacks, and dividends for the foreseeable five years.

Based on Amazon valuation and eBay valuation, Amigobulls has a neutral rating on both stocks.

Alex Cho Alex Cho   on Amigobulls :

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