As summarized in a recent note from the co-founder of Hunch, which was later acquired by eBay (NASDAQ:EBAY), both eBay and Amazon (NASDAQ:AMZN) seem to be taking two markedly different approaches to building their business. While eBay is increasingly moving towards being a facilitator in online commerce, Amazon is vying to become the “one-stop-shop” for an online consumer’s needs. This could work out favorably for them, but we believe eBay’s marketplace stands to lose market share as Amazon continues it push. That said, its push to become an e-commerce focused platform could help support its value, which we estimate is around around $41 for eBay’s stock, which is about 25% above the current market price.
With PayPal, eBay Increasingly Becoming a Payment Platform
PayPal’s contribution to eBay’s stock has consistently grown, standing at close to 27% by our latest estimates. The growth has come about as eBay’s Marketplaces revenue has stagnated, coupled with PayPal’s aggressive expansion into other platforms like mobile. This trend is expected to continue further as PayPal is now trying to partner with large retailers to compete head on with incumbents like Visa and MasterCard.  If this materializes, PayPal could see a sufficient chunk of its revenue stream from the offline commerce market as well. This could take eBay out of the battle-path with Amazon with the latter solely focusing on increasing its market share in the online retail market.
Amazon’s Undercutting Taking a Toll on Marketplaces
Amazon’s willingness to take a large hit on its margins has contributed significantly to its 35%-40% revenue growth in the past quarters. This has played a role in putting pressure on eBay’s own merchandise volumes, which have grown at a sluggish pace when compared to PayPal. To put it another way, Amazon’s vision is to fulfill all product/service needs of an online consumer. Starting from books, the company has moved on to licensing agreements with studios and cloud storage along with a variety of merchandise. Additionally, Amazon hopes to increase this consumption further with its array of devices like the Kindle Fire. We expect these trends to continue threatening eBay’s Marketplaces, which stands to lose market share in online commerce.
From these observations, it’s clear that though both eBay and Amazon represent one of the largest players in the e-commerce space, the companies are increasingly veering towards different strategies. This should help eBay in the way of avoiding direct competition with Amazon in the online retail segment while eBay’s payments and acquisitions like GSI Commerce help it in becoming more of an “e-commerce solutions” company in the future.
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