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Can eBay Survive in the Age of Amazon?

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On Thursday, eBay (EBAY - Free Report) stock had one of its poorest trading days in history, dropping 10.1% after a mainly disappointed Q2 earnings report and soft guidance.

The company reported fiscal second-quarter gross revenues of $2.64 billion, which missed the Zacks Consensus Estimate of $2.66 billion. Furthermore, eBay guided for 2018 revenue of $10.75 billion to $10.85 billion, significantly below the consensus estimate of $10.95 billion.

It seems as if the poor results couldn’t have come at a worse time, as competition is continuously heating up in the e-commerce space, and eBay seems to be falling behind. Since eBay mainly operates as an online marketplace, nearly any retailer, particularly ones with online shopping platforms, can be considered competition. For instance, retail behemoth Walmart (WMT - Free Report) recently partnered with Microsoft (MSFT - Free Report) to boost its e-commerce platform.

While the number of competitors continues to grow for eBay, Amazon (AMZN - Free Report) , which is likely eBay’s main rival, is only becoming bigger over time and winning over more consumers. Amazon engages in similar online retail of consumer products and also offers products through third-party sellers.

However, Amazon has an infrastructure and other business channels that eBay can’t come close to at all. Amazon stock has soared 55.3% in this YTD, while eBay has actually fallen in the same time period by -9.62%—a staggering difference in performance.

One of the factors bringing eBay down is poor reception to its new initiatives. The company’s aim was to revamp the brand through structured data, AI, and product-based experiences. However, analysts from Raymond James stated that these initiatives are “ramping slower than expected.”  In a space where digital innovation is key, eBay can’t afford to miss on advancements.

To go along with the struggles eBay is experiencing with its main marketplace, the company’s adjacent ticket platform, StubHub, has also contributed to the downfall of the stock. On a call with analysts Wednesday evening, CEO Devin Wenig described it as a “tough landscape” for sports and that showed as revenue growth slowed to 5% in Q2 from 12% in Q1.

Although we can only speculate, it would be interesting to see where eBay would be if it never spun off Paypal(PYPL - Free Report) in 2015 and instead kept the payment service platform. While eBay’s decision to narrow its focus on just being a marketplace hasn’t been too favorable, PayPal has performed strongly since it began trading as its own independent company.

PayPal is set to release its second-quarter results on July 25. And if the payment services company topping its Zacks Consensus Earnings Estimates in the last four quarters is any indication, then its results will likely be superior to what eBay just delivered.

While eBay is losing to its peers in the e-commerce business, there are some minor signs of hope for the company. The stock is currently trading at a pretty noticeable discount compared to other players in the space, with a forward P/E of 14.96 compared to Amazon’s forward P/E of 142.83.

EBay’s niche in the industry also differentiates it from other retailers and e-commerce platforms to a degree. The company is known for providing used merchandise and vintage goods, which even its rival Amazon doesn’t get as much recognition for.

Bottom Line

A few glimpses of hope but a greater general trend downwards is part of the reason why eBay currently holds a Zacks Rank #4 (Sell).

The company is in a competitive space that is marked by digital innovation and major companies like Amazon. Its unique niche as more of a discount online marketplace may not be enough to push the company forward and stand out from the crowd. In order to survive, eBay needs to be able to make progress with its initiatives and keep up with the industry.

This may not be the end just yet, but eBay likely won’t ever be the e-commerce pioneer and market leader that it once was.

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