The United States is one of the largest and rapidly growing online retail markets. Sales have grown significantly in the last few years, driven by e-shopping trends and adoption of mobile payments. For online retailers, e-commerce contributed $231 billion sales in 2012 and it is expected to generate $260 billion by the end of 2013.
Mobile payments to play a key role
eBay Inc (NASDAQ:EBAY) had a good quarter with profits of $829 million. Its profits were mainly driven by the growth of eBay Inc (NASDAQ:EBAY) marketplace and PayPal, and it expects to double its marketplace users and payment volumes at PayPal over the next three years. Mobile penetration will play a key role for both.
PayPal’s sales increased to $1.5 billion in the first quarter, a jump of 18% year over year. The sales were driven by improvements in mobile usage, consumer market share, better merchant coverage, and by covering untapped markets. The changing trends for payments via mobile have paced up dramatically, and with growing awareness, a quarter of PayPal account holders make payments through mobile.
The Point of sale, or POS strategy, an offline payment mode, has been deployed at 20,000 locations expecting to accelerate mobile user growth for PayPal. PayPal will gain both online and offline market share with initiatives such as e-commerce transactions at points of sale. With strong momentum in total payments volume, PayPal could add 42% and 45% to eBay Inc’s (NASDAQ:EBAY)s total earnings for 2013 and 2014, respectively.
For the first quarter, total revenue for eBay Inc (NASDAQ:EBAY) marketplace improved to $2 billion, an increase of 13%. eBay Inc (NASDAQ:EBAY) marketplace is an online platform for trading goods and services. Its growth was seen because of increasing active account users and mobile e-commerce trends. With an intention of expanding globally, the company has added new products to its marketplaces and re-designed its website providing better experience. With uplift in the mobile marketplace, gross margin value increased to 120% in 2012 and is expected to grow another 50% in 2013. Management says that with the increase in mobile users, they are exploring new mobile market channels with better growth prospects.
Exploring growth strategies
In the past, Barnes & Noble, Inc. (NYSE:BKS) has witnessed declining sales for its Nook tablets because of lack of multiple features in their tablets. It reported a decline of 26% in device unit sales year over year. It has also faced tough competition from Apple’s iPad and Amazon.com, Inc. (NASDAQ:AMZN)’s Kindle Fire. But in spite of all this, it has continued to do well with its retail business, which increased 7.3% year over year. The company plans to come up with new strategies to sustain its profitability over the coming period.
Barnes & Noble, Inc. (NYSE:BKS) is signing up with Google to add its apps to Nook tablets available in the U.S. and the U.K. market. This move was followed by the growth in educational toys and in the gaming category among consumers. Presently, it offers 10,000 apps and plans to expand the number of apps to 700,000 by adding Google play. This strategy may help Nook tablets to see better sales in the growing tablet market. The best part of this strategy is that the company is going to offer these products at their original price, without addition of any extra cost to it.
Along with educational toys and gaming category, digital content has witnessed strong consumer demand. Its digital content sales grew 6.8% year over year. By re-investing into digital educational initiatives, the company has come up with a new publishing platform, Nook Press, for authors. This new platform is similar to the company’s original self-publishing platform “PubIt!”, which was a huge success and helped many aspiring authors become best-seller ones.
It still continues to add 20% new authors every quarter. Nook Press will offer readers new features along with great price and provide them with fresh and useful content. With this platform, the company is targeting the growing demand for self-published content among consumers which contributes more than 20% of Nook Book sales every month. Nook Press is seen as an opportunity that may help drive the company’s earnings in the future.
Improving operating margins
Amazon.com, Inc. (NASDAQ:AMZN) posted solid first-quarter results with sales of $16.07 billion, an improvement of 22% year over year, although it was slightly below the consensus estimates of $16.27 billion. However, operating income was $181 million, which was well above the consensus estimate of $142 million. Its North American segment generated revenue of $9.39 billion and the international segment added $6.68 billion. Profits were mainly driven by the growth in media and electronic sales of $5.06 billion and $10.21 billion, respectively. Its web services also helped revenue growth with their increasing popularity in web and content services, especially the cloud services.
Third party traders also supported Amazon.com, Inc. (NASDAQ:AMZN)’s earnings, as 30% year over year increase was observed in worldwide unit growth. These traders accounted for 40% of total worldwide unit sales. Third party traders are small traders or merchants who sell their products using the company’s online platform for trading in exchange for a fee. These fees have generated millions of dollars for Amazon.com, Inc. (NASDAQ:AMZN) and have been an important contributor to its margins.
On the other side, a 70% increase in fees has annoyed the small traders as they feel that it is quite high. Because of this move by Amazon.com, Inc. (NASDAQ:AMZN), some traders may shift to other companies which charge lower fees. But, with higher fees, the company will also see increase in its profitability as I anticipate all traders are not going to shift.
Also, because of growing e-commerce trends and adoption of mobile payments, the investors can expect better earnings from the company going forward.
Bottom line
Amazon posted better margins in the first quarter, and with gaining popularity of its web services and third party traders’ contribution, it will see improved profitability in the coming years. Though higher fees may influence profitability in the short run, but increasing usage of online and mobile payments should offset this loss.
With accelerating mobile adoption and e-commerce trends, eBay should see its market expand. Also, PayPal is expected to gain both online and offline market share with the support of the POS initiative.
Although Barnes & Noble, Inc. (NYSE:BKS)’s has witnessed declines in its Nook tablets in the past, but by adding gaming and educational apps to its tablets, the company expects to see increase in its market share. Nook Press, with its innovative new publishing platform, is expected to drive traffic growth in future.
Thus, I recommend buying these online retail stocks.
The article 3 Must Buy Online Retailers originally appeared on Fool.com and is written by Shweta Dubey.
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