Last week we saw some interesting developments related to Amazon (NASDAQ:AMZN), eBay (NASDAQ:EBAY) and Sina (NASDAQ:SINA). We analyze a few such developments which could impact their value in the coming years.
Sina announced the launch of a new Internet television service for the users of its Weibo.com microblogging platform in collaboration with BesTV New Media, a Shanghai-based provider of video services and a unit of state-owned Shanghai Media Group. The move is a part of Sina’s larger strategy to add more multimedia content in order to win more social networking users and retain existing ones in face of stiff competition from rivals led by Tencent Holdings Ltd. The company described the new service as a “social television” viewing experience which will let users chat about programs as they are being aired.
Sina owes the majority of its revenues to online advertising and the move is aimed at generating more of it by driving user base growth. We believe that the strategy will take time to reflect in the company’s earnings and valuations given the tough competition and a slowing economy. The latter might discourage companies from increasing their advertising budgets.
We currently have a $66 Trefis price estimate for Sina which is nearly 30% above its market price.
The internet was abuzz with speculations behind Amazon’s apparent capitulation to a long-standing demands to start collecting sales taxes in states where it doesn’t have a physical presence. Amazon’s capitulation is being linked to its desire to start same-day delivery of products by establishing warehouses all over the country which would anyways result in sales tax liabilities even without the tax deals it has been making with individual states. Same-day delivery has the potential to cause a paradigm shift in the way retail business is done by eroding the competitive advantage of physical retailers who rely on consumers’ desire for instant gratification.
Regardless of whether this latest strategy eventually turns out to be successful, it will take time to execute. Hence we expect no impact on revenues in the short term.
On the other hand, we believe that levying sales taxes will erode Amazon’s overall competitive advantage in the short term and pull away some customers. Low margin businesses are especially likely to take a hit. The full effect will take about a year to reflect as tax agreements come into force. Deferrals on the other hand, give Amazon time to execute its new strategy so it’s too early to comment on long term revenue trends.
We have a $222 Trefis price estimate for Amazon which stands near its market price.
eBay had two major announcements to make this week. The first was its acquisition of Card.io, a San Francisco-based start-up that provides technology for developers to capture credit card information by using the camera on a smartphone. The second was its earnings announcement for Q2 2012.
Card.io’s acquisition reinforces PayPal’s focus on the mobile payment space. The acquisition is expected to bolster PayPal Here, its mobile card payment offering. Given the increased proliferation of mobile devices, any move to strengthen this business augurs well for the company’s future.
The company had a great second quarter with revenue increasing to $3.4 billion, up 23% year-over-year and net profit increasing to $730 million, up 16% year-over-year. eBay’s growth this quarter was driven primarily by PayPal as its payments business saw net revenue grow by 26% year-over-year. Revenue growth for Marketplaces, its core -e-commerce business was around 9%.
eBay’s total gross merchandize volume including vehicles increased to more than$18 billion, growing around 7% year-over-year. As slowing growth in this segment has been a concern for many investors, eBay’s solid growth reinforced Its mobile apps have also been instrumental in driving sales on the platform. eBay expects to generate $8 billion in mobile transaction volume in 2012.
We have updated the Trefis price estimate in light of the latest earnings and now have a $50.05 Trefis price estimate for eBay.