eBay Inc (EBAY), Amazon.com, Inc. (AMZN): Do Profits Even Matter?

Last quarter, eBay’s operating margin was 19.3% compared to Amazon’s nearly 0.5%. Also, unlike Amazon, the company is highly popular in Asia where there are great growth opportunities. eBay Inc (NASDAQ:EBAY) trades for 22 times its future earnings (and the company has a history of meeting or exceeding estimates) whereas Amazon trades for 170 times its future earnings (that’s if it even meets those estimates).

More competition

Amazon also competes with brick-and-mortar companies like Wal-Mart Stores, Inc. (NYSE:WMT) who are establishing themselves also as online stores. Wal-Mart Stores, Inc. (NYSE:WMT) allows customers to order products to be delivered to the nearest store location to be picked up within a couple of days. This business model also makes it easier for people to return products that they are not happy with. They can just bring the product back to the nearest Wal-Mart store and return it at the customer service desk rather than repackaging the product and shipping it off and waiting for a week before the product gets back to Amazon.com, Inc. (NASDAQ:AMZN), hoping that it won’t get lost in the process.

Wal-Mart also offers a dividend to patient investors with a current yield of 2.4%. Wal-Mart’s operating margin is 5.6%, which is much lower than eBay’s but much higher than Amazon’s. Wal-Mart Stores, Inc. (NYSE:WMT)’s current P/E ratio is 15 and the forward P/E ratio is around 13.5, which is much better than Amazon’s and somewhat better than eBay’s. Wal-Mart is great for conservative investors while eBay is for those who are looking for moderate growth; Amazon is for those that are looking for speculation.

Conclusion

Amazon.com, Inc. (NASDAQ:AMZN)’s share price decoupled from the company’s performance a long time ago. Valuation doesn’t seem to matter for this company at the moment. This poses a lot of danger for the current investors of the company because when a company’s stock-price appreciation is not supported by fundamentals, things fall hard. We’ve seen this during the dot.com bubble and we may be seeing it again with companies like Amazon. Wal-Mart and eBay present better valuations for those looking to add a retailer to their portfolio.

The article Amazon: Do Profits Even Matter? originally appeared on Fool.com and is written by Jacob Steinberg.

Jacob Steinberg 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. Jacob 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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