#3 Slowed growth & weak guidance doesn’t suggest opportunity!
After earnings, eBay Inc (NASDAQ:EBAY) is presenting the worst investment opportunity of the major e-commerce sites. Aside from missing Q2 expectations with revenue growth of just 14% year-over-year, the company also issued revenue and EPS guidance that was significantly below the consensus.
The problem for eBay Inc (NASDAQ:EBAY) is that its trademark Marketplace revenue is seeing slow growth. In the quarter, Marketplace revenue grew just 10%, which was down from Q1’s 13% growth. Marketplace is eBay’s largest segment, accounting for half of its revenue.
In the past, the company had shown a favorable trend where Marketplace revenue exceeded active user growth. However, in Q2, user growth was 14% compared to 10% growth in revenue, showing that fewer consumers are using eBay’s core buy and sell platform.
At 4.5 times sales, I don’t see how eBay Inc (NASDAQ:EBAY) is presenting too much upside. Fortunately, the company is not sitting on its weakness. eBay is testing same-day delivery and a local Marketplace. If successful, these services could re-attract consumers to eBay Inc (NASDAQ:EBAY). The problem with e-commerce or any online service is that many such sites become fads. If eBay Inc (NASDAQ:EBAY) lags its competition too much, the company runs the risk of losing sellers, buyers, and becoming less cool. As of right now, I don’t see too much to get excited about.
#2 Not as expensive as you think
Amazon.com, Inc. (NASDAQ:AMZN) traded lower by 4% and then recovered to close with gains of nearly 3% after it missed Q2 expectations. In the quarter, Amazon.com, Inc. (NASDAQ:AMZN) grew revenue by 22%, as sales in the U.S. increased 30% year-over-year.
Amazon.com, Inc. (NASDAQ:AMZN)’s margins are horrible, and were worse than usual in Q2 at 0.50%. However, investors expect it. The company is focused on growth, reinvesting money back into its business, and is doing a good job.
While e-commerce companies are retail focused, they are valued like technology stocks, as their operations run through the web. Amazon.com, Inc. (NASDAQ:AMZN) trades at 2 times sales, which, in technology, isn’t that bad.
The company is now entering the $587 billion a year grocery business and continues to see great success with its Kindle, Prime membership, and every other service that it offers. With $66 billion in revenue over the last 12 months, the entrance into grocery could add significant top-line growth, and is a development to monitor. Hence, I say Amazon.com, Inc. (NASDAQ:AMZN) is still a great growth opportunity, even over $300.
#1 A newly-emerged leader
I became bullish on Overstock.com, Inc. (NASDAQ:OSTK) at $15, and remain bullish at $35 as the company continues to perform with fundamental perfection. For the second quarter, Overstock easily exceeded expectations with revenue growth of 22% and a 34% rise in gross profit.
Overstock.com, Inc. (NASDAQ:OSTK) produced a 170 basis point rise in gross margin. Therefore, Overstock is not only producing Amazon-like revenue growth, but is also becoming very profitable. Currently, Overstock has operating margins of just 1.72%.
Moreover, at 0.66 times sales, Overstock.com, Inc. (NASDAQ:OSTK) is the cheapest of the three e-commerce stocks. The company’s growth is expected to stay in the range of 15%-20%, as is its bottom line improvements. Back in 2011, many feared that the company’s investments into growth would not pay off, and that its margin weakness was permanent. However, Overstock has taken the market by storm, and is definitely a small but growing force to be reckoned with.
Hence, with industry-leading growth, a cheap stock, and improvements in efficiency, Overstock.com, Inc. (NASDAQ:OSTK) is presenting the greatest upside and value of any e-commerce stock.
Final thoughts
I, for one, think that the e-commerce space is an area of great opportunity. eBay Inc (NASDAQ:EBAY) is disappointing. However, Amazon.com, Inc. (NASDAQ:AMZN) and Overstock.com, Inc. (NASDAQ:OSTK) remain growth companies in a market that rewards strong fundamental performance. Therefore, I don’t think you can go wrong with either, although Overstock’s value and its margin expansion sets it apart.
The article Which E-Commerce Stock Is the Best Buy After Earnings? originally appeared on Fool.com and is written by Brian Nichols.
Brian Nichols has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and eBay. The Motley Fool owns shares of Amazon.com and eBay. Brian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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