Stock Market Analysis - Amazon Inc and Ebay Inc - Case Study Example

Stock Market Analysis: Amazon Inc. and eBay Inc al Affiliation) Stock Market Analysis: Amazon Inc. and eBay Inc Introduction: Amazon .com, Inc. currently ranks first in online retailing. This American company deals in electronic commerce and has its headquarters in Washington, USA. The organization got its boost through the entrepreneurial skills of its founder, Jeff Bezos, who has steered the company to its current multi-million dollar status. eBay is a multinational e-commerce company that offers consumer to consumer sales through the internet. The company has based its headquarters in California. eBay is one of the organizations that thrived during the dot-com bubble, making it a multi-million dollar company. eBay boasts localized services in more than 30 countries. eBay manages an online shopping and auction website, eBay.com (eBay.com, n.d.). History Jeff Bezos, a sole entrepreneur, incorporated Amazon.com, Inc. in 1994 in another name, Cadabra. The company set up an online account as Amazon.com a year later. Jeff Bezos doubles up as the firm’s Chief Executive Officer and President. The firm developed from a small online bookstore to have different retail websites for the different countries in which it operates. Some of the countries in which Amazon operates include the United States, France, Canada, the United Kingdom, Brazil, Spain, Italy, Japan, China, Mexico, India and Australia. The company plans to develop websites for countries in South East Asia and Sri Lanka. The organization also operates an Austrian website (Amazon.com, n.d). Pierre Omidyar and Jeff Skoll founded eBay in his living room in San Jose. Ebay was formd oin 1995, and its purpose was to be a market place for selling services and goods for people. In 1998, they decide to bring in Meg Whitman to promote the success of the enterprise. eBay has since developed from being a source of client for sellers of products to becoming the world’s largest online bargain website, with operations in America, South America, Europe and Asia. Services Amazon retails in any form of item, ranging from books and electronics to clothes and recently fresh food products (Amazon.com, n.d). from recent acquisitions, the company has expanded its services and products to video game software. On eBay.com, people sell and buy a wide variety of goods from all over the world. The company has ventured into the ‘Buy It Now’ model of shopping, money transfers, ticket bookings and even classified advertisements online. Customers and Suppliers Amazon’s major customers are online shoppers. The organization receives more than 2 million requests for purchase of items every day, making these buyers the biggest business that the organization has. The company has many suppliers, who supply the different items that their customers need to purchase. The biggest suppliers for Amazon include Marks & Spencer (UK), edeals.com, Benefit Cosmetics (UK) and Lacoste (Amazon Performance Summary, 2014). eBay’s customers are online shoppers, who place orders for products they desire to purchase from the company’s online catalogue. eBay has suppliers from all over the world. Aside from individuals posting products on the eBay website, other established brands such as Woolworths, Zara and Sony have used eBay to sell products to customers.(eBay.com, n.d.) Leadership Jeffrey Bezos, who is the Chief Executive Officer and President, heads Amazon. Jeff also chairs the Board of Directors. The firm has six Senior Vice Presidents namely: Jeffrey Blackburn (Business Development), Andrew Jassy (Amazon Web Services), Diego Piacentini (International Customer Business), Thomas Szkutak (Chief Financial Officer), Jeffrey Wilke (Consumer Business) and David Zapolsky (Company Secretary and General Counsel). The company also has a Vice President, Shelley Reynolds, who is also the Principal Accounting Officer and Worldwide Controller (Amazon.com, n.d). eBay Inc. is headed by John J Donahoe. He has the Chief Executive Officer and President of the firm since March 2008. He was a director at the firm in January 2008. The co-founder of eBay, Pierre Omidyar, chairs the Board of Directors (eBay.com, n.d.). other executives include Robert Swan (Senior Vice President of Finance and Chief Financial Officer), Craig Hayman (President, Enterprise Business), Devin Wenig (President, Global Marketplaces Business Department), Mark Carges (Senior Vice President, Global products and Chief Technology Officer), Brian Doerger (Vice President and Chief Accounting Officer) and Michael Jacobson (Secretary, General counsel and Senior Vice President- Legal Affairs). The company has other executives running the affairs of its many branches across the world. Synopsis Amazon works towards ensuring that customers receive the best possible treatment during their transactions. The organization has developed services to enhance good customer experience throughout its branches. The latest among the organization’s developments is the Amazing Prime, which offers subscribed customers free shipping as well as access to more that 40000 books in the amazon library. Further, the organization has developed the Amazon Fresh, which enables customers to order fresh food products from their homes (Amazon.com, n.d.). Amazon constantly tries to reduce the time it takes to deliver an order. The firm has recorded considerable success in this quest. Currently, the e-commerce firm has the capacity and ability to take approximately 2hours and thirty minutes to process an order from the time the customer clicks the order button to the time the product gets on a ship for delivery (Amazon Performance Summary, 2014). Amazon is one of the few companies that have invested in robots. Aside from this investment indicating that the company has embraced technological innovation, the company has enhanced its effectiveness in production and processing. Amazon currently employs more than 400000 people in the world (Amazon Performance Summary, 2014). eBay has developed tremendously over the 17 years that it has existed. The company is a trendsetter in online shopping and the first organization worldwide to introduce online bargains. The company has more than 40 subsidiary companies, which give it a wide investment portfolio. The organization has investments through its subsidiary companies in numerous portfolios such as events, price forecasting, commerce, virtual clothing, social shopping, payments, mobile applications, online classifieds and ecommerce, among others (eBay.com, n.d.). Stock Report Charts Amazon.com, Inc. eBay Inc. Amazon completed its IPO in May 1997, with its shares trading at $180 each. From the graph, it is clear that the value of the Amazon shares have steadily risen to the current value of 335.90. The highest value for Amazon shares has been $400, towards the end of 2013. The financial crisis of 2007-2008 adversely affected the company, recording a low value of $60 per share.in January 2011. Amazon shares traded at $180 and at $170 and $250 on the same date in 2012 and 2013 respectively. eBay began trading at the New York Stock Exchange in 1998, with its shares trading at $18 each. Currently, the company share value stands at $53 per share. Just like Amazon, the company faced negative effects of the 2007-2008 financial crisis, which saw its share value drop to less than $20 in 2010. eBay, however, took longer to recover from the effects of the crisis. eBay shares traded at $27, and at $30 and $50 on the same date in 2012 and 2013 respectively. From these charts, it is can be concluded that Amazon shares are more volatile, and can change with time as opposed to eBay shares, whiose value has not changed by a wide margin. Press Coverage On March 28, 2013, Amazon acquired Goodreads for a price estimated to be around $150 million. Goodreads is a book-sharing website founded in 1997, and has more than 16 million subscribers, 530 million book titles and 23 million reviews for books. By acquiring Goodreads, Amazon’s move changed the book industry (DePamphilis, 2008). The potential that Amazon has by acquiring Goodreads in lies in the social media and book discovery. By investing in Amazon, an investor stands to benefit from the multi-billion books industry that Amazon now dominates. With fewer people purchasing books from stores, Amazon has changed the book industry (Amazon.com, n.d). On 5th February 2014, Amazon also acquired Double Helix Games for an estimated $50 million. Double Helix Games is a gaming studio founded in 2007. The agreement covers both intellectual property and talent. Amazon took over all the 75 employees of the gaming company. Investing in Amazon would give an investor the opportunity to be part of the company’s commitment of building innovative games. Further, if there is any basis to claims that the organization is developing a gaming console, an investor stands to gain from direct sales as well as rights to the games developed by the company (Schabacker & Mack, 2005). . Lately, the organization announced that it would collaborate with DC Comics. This partnership will give Amazon.com the sole digital rights to popular comics such as Superman, Batman, Watchmen, the Sandman and Green Lantern. Amazon acquisitions are future orientewd, which makes their services appealing to future generations. This supports the value of their stock, making them more attractive to investors. By September 2013, the number of acquisitions by eBay stood at 40 companies, most of which are in the United States. eBay acquired Skype, an internet VoIP company, at a price of $2.6 billion. Skype has developed software for mobile phones, with many smartphones allowing for video call services. Skype has redefined the future of communication by setting trends in online communication through a social network. Investing in eBay is a profitable venture, considering the potential that Skype and other acquisitions have. It is widely believed that with these acquisitions, eBay is planning to place itself strategically as an internet powerhouse (DePamphilis, 2008). The organization has faced controversy from news reports that hackers had hacked into one of its databases. This hacking led to the organization forcing its subscribers to modify their passwords so that they do not fall victim to malicious individuals. The attack affected more than 140 million users of the website. This coverage brought about a global debate as to whether the hack has had a negative effect on the stock prices of the firm; with more people feeling that eBay is not doing enough to protect their personal details. Many people even shifted to competing websites such as Amazon. This reduces the prospects for this firm as a viable investment option (Schabacker & Mack, 2005). However, there are market observers who do not see the hacking as a major threat to the value of the stock (Nasdaq, n.d.). The company pushed forward with its target of hitting the share price of $65 per share. Financials AMAZON.COM, INC. COMPREHENSIVE INCOME STATEMENT (in millions) For the Year Ended Dec. 31, 2013 2012 2011 Net income or loss $ 274 $ (39) $ 631 Foreign currency translation adjustments 63 76 (123) Unrealized gains (losses) (10) 8 (1) Reclassification loss adjustments (gains) 1 (7) (2) Unrealized gains (net losses) (9) 1 (3) Other comprehensive loss or income 54 77 (126) Total Comprehensive income $ 328 $ 38 $ 505 Amazon’s statement of comprehensive income does not include profits from the company’s new acquisitions. Amazon is a viable investment for any investor. This viability is evident from the profits that the company made in 2013, from a loss of $39 million in 2012. Amazon’s profit after tax was $274 million in 2013 (Amazon Performance Summary, 2014). Despite the challenges that the organization faces with regard to foreign currency fluctuations and even taxes, the organization managed to make more than quarter billion dollars in profits after tax. With the new acquisitions and mergers, the organization will most likely improve effectiveness, lowering shipping costs and increasing revenues by having more business options. These opportunities make investment in this company more attractive (DePamphilis, 2008). The comprehensive income for the organization is slowly edging closer to the $505 million recorded in 2011, with $328 as the figure for 2013. eBay Inc. COMPREHENSIVE INCOME STATEMENT (in millions) For the Year Ended Dec. 31, 2013 2012 2011 Net income or loss $ 16074 $14072 $ 11652 Profit (Gross) $11011 $9856 $8191 Income raised from operations 3371 2888 2373 Income (Before tax) 3466 3084 3910 Comprehensive Income (After Tax) 2856 2609 3229 Every year, eBay Inc. has grown its revenues to $16.0B USD from $14.1B USD .An impressive fact is that the company has reduced the sales percentage exclusively devoted to selling, administrative and general costs to 29.68% from 31.84%. This cut contributed to the growth of the company to $2.9B USD from $2.6B USD. The organization also faces issues regarding fluctuations in the foreign exchange market, which affects its sales figures. From the total income, it is clear that less than a third of the gross revenues come from operations of the firm, showing that the firm’s revenues depend on the activities on its websites. To invest in eBay would be a risk, despite the profits it makes because its is largely dependent on the economic activity of other people and companies as opposed to generating income from its own activities. Analysis In the stock market, eBay has been a better performer than Amazon with regard to the value of shares (Nasdaq, n.d.). However, since the turn of the year, the eBay shares have been down 6 percent while Amazon shares have gained by 23%. In terms of investment, an investor desires to buy shares that can quickly gain value so that in the event that he either earns dividends from his shares or has to resell them to another entity for different reasons, they would not run into losses (Schabacker & Mack, 2005). Amazon shares are less rigid compared to eBay shares, therefore they have a higher chance of increasing in value over a short period of time. The value of Amazon shares increased from $170 in January 2012 to $250 in January 2013 while eBay share value increased from $30 to $50 over the same period. In addition to that, Amazon has recorded a 31.4 % growth in sales figures compared to 113.8% sales growth for eBay. It is from increased sales that companies earn revenues. In that light, an investor would ensure that he invests in organizations that promise rapid growth and deliver on the same. It is therefore clear that, as at this moment, the better investment would be Amazon.com, Inc. Despite its many acquisitions, the organization has not maximized on its potential as it did in 2004. The risks involved in investing in eBay are more, compared to the risks of investing in Amazon. To begin with, the investment portfolio of eBay Inc. is very wide. eBay has acquired more than 40 companies since its inception. Despite the rapid growth and profits, an investment portfolio of this size comes with many challenges in finances, management and commercial expansion. The difference between Amazon acquisitions and eBay acquisitions is that Amazon acquires companies with operations related to theirs. The chances of eBay growing beyond where it is now are lower than the chances that Amazon stands for growth. It is more logical for an investor to invest in a company with potential for growth, to ensure returns on investment. Amazon recorded net profits of $328 million in 2013 from $38 million in 2012, indicating a $290 million revenue increase. eBay recorded profits worth $28560000 in 2013, up from $26090000, indicating a $2.47 million revenue increase in revenue. This indicates considerably more potential for investors who choose Amazon over eBay. In addition to that, with regard to the size of the company and the rate at which the two companies apply innovations, Amazon offers more potential. As indicated above, Amazon continues to put in effort towards cutting down the time between the placing of an order and delivery. References Amazon.com, Inc. (n.d.). Amazon Financial Reports. Retrieved August 20, 2014, from http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-reportsAnnual Amazon.com Performance Summary. (n.d.). Help:. Retrieved August 20, 2014, from http://www.amazon.com/gp/help/customer/display.html?nodeId=13379501 Corporate Governance. (n.d.). Investor Relations. Retrieved August 20, 2014, from http://investor.ebayinc.com/corporate-governance.cfm DePamphilis, D. M. (2008). Mergers, acquisitions, and other restructuring activities (4th ed.). Amsterdam: Elservier/Academic Press. Nasdaq Amazon Goodreads Acquisition. (n.d.).. Retrieved August 20, 2014, from http://beta.fool.com/adamlevy/2013/04/04/the-biggest-reason-amazons-goodreads-acquisition-i/28912/ Schabacker, R. W., & Mack, D. (2005). Technical analysis and stock market profits a course in forecasting. Petersfield: Harriman House. Sincere, M. (2004). Understanding stocks. New York: McGraw-Hill. Read More