Introduction
Investing can be easier said than done. It is a process that not only involves money, contrary to what most people believe, but also time, effort, energy, skill, knowledge, and usually the most important of all, experience. It is a very tedious task. It has to be made clear that there is a big difference between making investment decisions and making gambling or shotgun decisions. While investment decisions do get affected by luck and other unexpected things such as the collapse of a company or a shifting market trend, it still is unique from gambling decisions. Gambling decisions are usually based on luck, nothing more and nothing less; while investment decisions are mainly based on a rational analysis of the various factors that may affect the chances of making the investment decision a good one or not in the future .
In other words, investors who make investment decisions usually rely on the suggestions and recommendations of individuals who make a living studying the investment markets or from investment analysts. Relying on the results of updated investment analyses has been proven to be one of the rational and practical ways how an investor or an aspiring or newbie investor can decrease the level of risk whenever he makes a new investment decision. The objective of this paper is to present an investment analysis, comparing the different investment related facets of the two companies, Amazon and eBay, which would be presented to the panel of investors. The main objective of the paper is to compare these two companies in terms of which among the two companies would be a more reliable, and profitable investment partner.
Company Background
The purpose of the company background is to give the readers a general idea of what the two companies are all about, what their business is all about, what their trades are, how each of them makes money, and what business processes are involved in their revenue-generating schemes.
Amazon
Amazon is an international company, based in the United States of America, which specializes in electronic commerce products. This company’s headquarters is based in one of the major US cities in the state of Washington, Seattle. The conceptualization of the company and the brainstorming activities about the establishment of this company started numerous years before its date of inception in 1995. This company used to operate merely as an online bookstore where users from across the major cities and even remote places in America can order, rent, or borrow books by simply logging in to their online Amazon accounts, complying with the company’s registration and authentication procedures, and then following a simple set of instructions and filling out a series of forms. Amazon is one of the pioneers in the online book selling or renting business. In fact, most critics believe that Amazon is the sole author of the revolutionized online book selling and renting business model. After a series of waves of success, the company became able to diversify their product lines from a mere collection of books to a large collection of Compact discs, Digital Versatile Discs, software solutions, video games, mp3 downloads, paid video streaming links, apparels, furniture sets, toys, foods, jewelry, consumer electronics and computer systems, not to mention the various types of accessories they sell. Amazon has focused so much in increasing the level of diversity of its products that it now has its own line of consumer electronics named the Amazon Kindle Fire—a tablet computer, and Amazon Kindle e-book reader, which is also a tablet computer mainly used for e-book reading purposes. The most obvious and apparent result of Amazon’s product diversification program is its worldwide popularity as one of the most trusted and established online product or e-commerce dealers.
Amazon has its own online platform where millions of online merchants—or those sellers who have both a physical and a virtual store, and millions of users can make e-commerce transactions. Amazon has also internationalized their e-commerce business processes. It now has separate web domains for merchants and sellers in the United States, Austria, Japan, China, Spain, Brazil, India, Italy, France, Germany, Canada, and the United Kingdom. Aside from setting up dedicated domains for the countries that have just been mentioned, the company also has the international shipping feature which enables the users from countries that were not on our recent list to buy and sell sellable products via Amazon’s e-commerce platform. Amazon recorded a total revenue of over 61 billion USD; an operating income of over 676 million USD; a net income of (39) million USD in 2012, with over 97,000 employees worldwide. Compared to EBay’s figures, Amazon loses only in terms of net income. EBay, for the year 2012, has sustained positive net income figures as opposed to its counterpart, Amazon, which suffered from a negative 39 million dollar deficit, mostly because of its expansion, and other development programs. Nonetheless, Amazon beats eBay in almost all other financial aspects. Compared to eBay, Amazon focuses more on direct selling and buying of products, using a more fixed price range.
EBay
Most people would try to argue and eBay and Amazon Inc. are the two biggest consumer to consumer corporations not only in the United States market but in the world market. EBay is an American international company that specializes in e-commerce services and product buying and selling. Its headquarters is based on San Jose, California and was formally established in 1995, the same year that Amazon was instituted. EBay, together with Amazon Inc., is one of the pioneers of buying and selling products online. Compared to Amazon, eBay’s expansions over the years after 1995—their inception dates both in terms of product line diversification and internationalization programs have been on a much smaller scale. EBay recorded revenue of over 14 billion USD; an operating income of over 2.8 billion USD; a net income of over 2.6 billion USSD in 2012, with almost 28,000 employees worldwide. While it is true that EBay is the only online trading, e-commerce-based company that comes closest to Amazon in terms of utility, popularity, and sheer financial figures, it still gets beaten by its rival in terms of every aspect. Unlike Amazon, eBay became popular as an online bidding platform wherein users can join auctions for a certain product; a procedure which carries a certain chance that one or more than one user would be able to acquire an item for a price significantly less than its retail price. It is detrimental to note however that both Amazon and eBay have, in their respective e-commerce sites, both a direct buying and selling, and an action or bidding feature.
Stock Market Trends
Analyzing the latest stock market trends is detrimental to anyone who is planning to invest in equities. Stock market trends, despite the well-established fact that suggest that previous stock performances are not guarantees of future gains, are so far the only, and thus the most reliable reference that an aspiring investor can use in rationally predicting the future of his investments in a particular company that offers equity, which in this case, are Amazon and eBay. Stocks of these two companies have long been indexed in the U.S. stock market. Thanks to the dot com bubble, companies that operate or earn revenue through different processes on the internet and their respective stock prices are booming. The objective of this section is to provide a brief comparison between the two companies’ respective stock performances. According to Graham in the 1974 edition of his book, The Intelligent Investor, an intelligent investor would review not just the stock performance of his preferred companies for the past year, but also in the past three years, five years, or probably even more . In this investment analysis paper, the author will follow Graham’s suggestion, reviewing the stock prices of the two companies in the past five years, and judging their stocks’ performances based on that.
The historical stock prices of the two companies for the past five years have been compared and based on the objective comparison as recommended by Graham, Amazon Inc. beats eBay by a considerably large margin—over 10 percent, in terms of annualized return, considering how each of the two companies’ stock prices grew for the past five years. If we are going to base purely on the potential investment returns on both companies for the next couple of years, then it is more likely that investors would get more favorable and profitable returns by investing in Amazon rather than EBay. However, it is important to take note that both companies have high chances of offering positive returns as evidenced by their stock performances over the past five years. For more aggressive investors however, it would be a matter of which company would be able to produce higher yields. In this case, that company would be Amazon Inc.
Current Events
Current events both on the local and international scale may also have a significant impact, which can either be a rise or fall, in any company’s stock price. These events can also either be political, economic, or disastrous in nature. One common assumption in the world of investing suggests that any economic, political, issue or conflict would almost always lead to a negative effect on the companies indexed in the stock market’s price . In that case, both Amazon and EBay would most likely suffer from possible lower stock prices in the future.
The Syrian Civil war
The Syrian Uprising, or what is more famously known as the Syrian Civil war, is one of the hottest news on publishing and broadcasting companies, both local and international, today. How can a civil war in Syria possibly affect the investment choices and projections of investors from other countries? Firstly, the Syrian conflict can be the start of a worldwide conflict. Aside from the fact that the conflict has been ongoing for almost three years since March of 2011, with more than 100,000 people killed, the current Syrian government led by current President Bashar al-Assad allegedly used chemical weapons to kill thousands of people in the conflict, which obviously led to his camp getting the upper hand. This war-crime, as postulated in international laws pertaining to warfare, compelled the United States president Barrack Obama to make moves towards possible U.S. intervention in the conflict, with an aim to balance the forces and to make it clear for the Syrian government’s president’s camp that using chemical weapons is strictly prohibited.
The problem here is that a possible U.S. intervention is against the interest of Russia, one of the world’s current super powers, because Syria houses its only naval stationing and supply base in the Mediterranean. In an event of a worldwide conflict, which may well start from a conflict involving Syria, and these two world Superpowers and of course, their allies—at least in the future, investor confidence will definitely go down, steeply at that. The recommended step for anyone who plans on investing in securities and equities at this point is to monitor the developments regarding this possible world-wide issue.
Tapering of U.S. Quantitative Easing or QE Program
The United States economy is still the largest economy in the planet and any major rise and fluctuations will undoubtedly have corresponding effects on other country’s economy. One of the latest news about the U.S. market is its move to taper its QE or Quantitative Easing Program. “Under the QE, the Federal Reserve hoovers up assets, mainly US government bonds or treasury notes in a bid to push up their prices, which helps to reduce interest rates across the economy and create conditions for recovery but a side effect of the policy is that banks and other investors would use the cheap cash to go on a global shopping spree; when the money is flooding in, inflating share prices would drive down the cost of government borrowing, which makes it very easy for politicians in emerging economies to believe their own hype—political stability, rising middle class, a large and growing workforce, huge untapped potential but when the tie turns, they can suddenly become acutely vulnerable” .
This is actually the same condition that triggered the Asian crisis in 1997-1998, a scene characterized by investors pulling out their investments in other countries to take advantage of the easier returns that they can gain in the U.S. market. The Quantitative Easing program is basically one of the many tools that the Fed or the United States Federal Reserve—the United States’ Central, uses to stimulate the United States economy towards a path to sustainable growth which is something that the U.S. economy needed to mitigate the effects of the global economic depression that happened in 2008-2009 and recover from the drastic economic consequences of the said event. With the US QE infinity program, the United States government permits the U.S. Central Bank to produce some 85 billion USD every month to stimulate the U.S. economy. However, according to the latest statement by The Fed’s chief, Ben Bernanke, the Fed will taper the QE program. This would most likely cause panic in the market as investors lose confidence on the stability of the growth of their investments .
Based on the recent turn of international events, it would really seem that now is a very risky time to invest in equities and other forms of investment since the world economy and politics appear to be in a very unstable and unpredictable state, at least based on the brief assessment and discussion of the two international issues—one related to politics and the other related to economics, that can have large potentially negative impact on the stock prices of Amazon and eBay.
Conclusions and Recommendations
Based on financial figures alone, Amazon would really appear to be the winner over its slightly smaller competitor, eBay, hands down. Amazon beats eBay in terms of Total Revenue, Operating Income, and organizational size—using the total number of employees as the primary factor. The only area where eBay has beaten Amazon is when it comes to the net income or profit area wherein Amazon got a negative figure, which means it has incurred a financial deficit. But then again, considering the efforts that Amazon has exerted for infrastructure expansion and product line diversification, there is no wonder why they incurred a negative net income figure for the year 2012.
The timing of entry into the market also plays an important role in an investor’s success. Unfortunately, because of the Syrian Civil War, and the possible—although it has already been announced by the Fed’s chief, tapering of the U.S. Quantitative Easing program, the economic and political conditions—both of which are necessary in securing long term positive investment returns because they generally affect the confidence of other investors which are in turn some of the main driving forces of stock prices, now may not be a perfect time to invest in any of these two companies despite the fact that Amazon beats eBay hands down.
References
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Codau, C. (2011). Investment Structure and Evolution in the Context of Economic Crisis. Annals of the University of Oradea, 230-235.
Graham, B. (1974). The Intelligent Investor. 515.
Stewart, H. (2013). US To Relax Quantitative Easing but Emerging Markets Grow Tense. The Guardian Journal UK, 1-3.
Vasia, P., & Dimitris, P. (2012). Invesetment, Idiosyncratic Risk, and Ownership. Journal of Finance, 1113-1148.
