eBay sues Amazon. Game changer?

eBay has just filed a lawsuit against its major competitor, Amazon, accusing the company of illegally poaching sellers on its marketplace via eBay’s internal messaging system.

The lawsuit says that the alleged scheme was used by dozens of Amazon sales representatives in the U.S. and abroad to recruit high-value eBay sellers to Amazon.

Initially just an online bookstore, Amazon expanded into a superstore selling digital media as well as physical products. On the other hand, eBay transformed online marketplace auctioning from what was just collectibles to a significantly larger array of products. Additionally, through its acquisition of PayPal, eBay revolutionized the profile of digital payments, spinning off the business in 2014, further supporting the growth of e-commerce payments platforms.

We all know that Amazon is a massive company and by far dwarfs eBay. This lawsuit, however, helped to remind me to look at eBay as an alternative investment to Amazon.

Protection from competition

Although Amazon has more shoppers, eBay has managed to build a larger network of buyers and sellers that helps to protect it from the competition. This is seen by 171 million unique customers over the last 12 months. It also has over 25 million sellers on the platform.

eBay's biggest strength is in micro-merchants and consumers interested in selling their own items. The onboarding process for selling on eBay is relatively streamlined compared to Amazon's or Walmart's marketplaces, and it has enough shoppers to attract sellers.

eBay particularly caters to people interested in selling just a few items. This strength allows eBay to offer a unique product selection compared to marketplaces primarily focused on larger sellers.

Product enhancement

eBay is looking to invest in artificial intelligence to improve product data.  When you search for something on Amazon, for example, you can usually find one main product listing for which there are multiple merchants. Amazon automatically promotes the listing of the merchant with the lowest price and best reputation. It makes for a much cleaner and better user experience, and one eBay is working toward.

Valuation

eBay has a P/E of 15.99 whilst the sector P/E online retailer is as high as 73. The company also has a healthy P/FCF of 13.30, P/B of 4.45 and P/S of 3.06.

The company has been increasing revenues each year and although it reported a loss in 2017, eBay is expected to return to profit-making as from this year.

The next earnings announcement is on the 30th October and several analysts are currently bullish on the stock due to the continuing shift from traditional retail to online retail. An interesting statistic of Google trends also showed an increase in site visits.

Price

The price has been on a downtrend for the year and lost over 30% since the highs of February driven by the overshadowing of Amazon and the losses reported. It is also currently sitting on an important support level which goes back to the period of August – November of last year. 

In my opinion, therefore, I think that the stock is currently undervalued and represents a good opportunity based on the current prices and fundamentals.

 

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