Buy amazon and short ebay

from a macro perspective it seems clear that amazon should one day be worth more than ebay. here’s my reasoning…

i can see how i will still be doing my ecommerce on amazon in five years as they are the walmart of online retailing. they’re the fastest place for me to buy my gifts for father’s day, new babies, i even go to them to buy pro flowers for mother’s day. it’s just more conventient and always seems like a good deal.

ebay is in a tougher spot. as the broker of person to person ecommerce transactions, they are always at risk of buyers and sellers finding each other through other means, like google. i dont see google replacing amazon. i guess they could. google could let you input a credit card. they could ‘host’ the transaction like amazon and then get your ratings like ebay and amzn.

well, my take is that ebay’s market cap of 45 billion has to go down while amazon’s has no reason to drop. on a quick look, it appears that amzn is trading at 32x the high estimate of 2007 earnings with 50% expected growth, while ebay trades for 29x with 30% forecasted growth. i recommended shorting ebay on this blog in the fall when it was around $40 per share. it went up a bit before settling down to $32 now.

i need to understand amzn’s story a bit better but the idea of a paired trade here is interesting to me. and with the share prices almost the same it makes the math easy too:)

anyone have any deeper insights into these stocks?

8 thoughts on “Buy amazon and short ebay

  1. the one thing that eBay has that might make me pause on a paired trade is PayPal.
    regardless if they host all the transactions going forward, they may still get to process the payment.

  2. the question is whether paypal will be worth 45 billion, right? or what are the two businesses individually worth?
    lets say
    skype is worth $1 billion.
    paypal??? if its 25% of ebay revs, how about $10 billion.
    will the main ebay business be worth another 35 billion long term? how much longer will car dealers pay ebay to bring in online customers before they advertise themselves on google, or just list a teaser low price on whatever new car price shopping engine emerges?

  3. You and Fred love these paired trades – why?
    You are smart and your track record proves it, so use simpler ways to make money in the market.
    I like amazon for sure, but you are in a position to see way faster growing companies and leave these two boring STOCKS to the messes they find themselves in

  4. In light of eBay’s new affiliate play, which I think is called AdContext, I’d reconsider your positioning and valuations here. Wouldn’t change anything you said about Amazon, but eBay is opening up in interesting ways and becomes the 3rd networks of advertisers after Google and Yahoo! (Overture). That’s a big deal and worth a lot.

  5. Reasons I think EBay will eventually prove a better investment than Amazon. One proviso I do think that Ebay will fall to a bargain price of 34 times earnings during July this summer if Google launches Gbuy. Google will not outdo Ebay in sales. Google have search, ads, google earth, Gmail. The market will overreact to Gbuy and make Ebay a bargain. Googles previous launches have all proved a massive failure, Google talk, Froogle (which will direct you to ebay mostly!) Google text etc. If you click into the more tab you will find a whole host of products that have no chance of being a success.
    Ebay
    1. There current P/E is 39.10
    2. Their Net Profit is 21.9%
    3. Their Gross Margin is 87.4%
    4. Their fixed costs are miniscule as evidenced by a 87.4% Gross Margin
    5. Their 5 year growth rate is 55.1% (this will slow, but not below the 20s)
    6. They own a telephony company that will prove to be a success in the next 3 years and generate massive revenue. This is evidenced by the huge increase in users of skype month by month. Increasing amounts of people living a distance from Contacts. The users who will be drawn in by Ebays skype feature on ebay ads.
    7. Amazon has a 5 year growth rate of 25.4% (this will slow)
    8. Amazon Net profit margin of 3.7% (this will increase)
    9. Amazon Gross profit margin 25.5% (this will stay steady)
    10. The individual value and hence revenue on an average item (book, cd, bag) bought on Amazon will rise in line with general inflation for those goods. ie a book bought now on Amazon will cost 10$, obviously in ten years time a book bought on Amazon would be expected to cost $12-$15. However, ebay started off selling coins, books, magazines. They are increasingly moving towards higher value items such as cars, property, expensive musical instruments. Ebay will earn a huge revenue from the sale of such items at little extra cost. Amazon will be unlikely to sell as much cars, houses, etc. The % of ebays total items that are high cost items will increase.
    11. Amazon is trading at 47.8 times earnings.
    12. Ebay will never have any competition
    13. Ebay will never have any trouble with their profit margins
    14. Ebay will develop a strong core of frequently bought items such as Mach 3 razor blades.
    Negative Ebay
    (They will suffer plenty lawsuits, but have plenty cash to stave these off and pay up if necessary)
    FInal provido Amazon is also a good investment 😉

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s