Is This Rally for Online Retailers Sustainable? – eBay Inc (EBAY), Netflix, Inc. (NFLX)

I will only point out that even though the company’s revenues grew by a higher rate than earlier projected, its operating profit fell from 12% in 2011 to 1.4% in 2012. Furthermore, despite the rise in revenues, Netflix’s free cash flow declined from $52 million in 2011 to ($245) in 2012. These figures should put an asterisk over the rally of this company’s stock in recent months.

Amazon

This e-commerce leader’s revenue grew during last year by 27%, which is also well above the industry benchmark we have set of 16%. Its free cash flow fell in 2012 from $1.9 in 2011 to $585 million in 2012. But part of this fall in cash flow is due to the company’s rise in investment in software and website development by nearly $2 billion in 2012. This provision could suggest the company’s revenues will further rise on account of new products it will develop in the coming years. But this company’s profit margin, unlike eBay, is much lower at 1.1% in 2012. If the profit margins will continue to fall, this could impede the company’s stock growth.

I won’t suggest that these companies are the same or their recent rise in the stock market is related. I only wanted to point out that among the online companies listed above eBay and Amazon were able to outperform the market average. Therefore, the rise in shares of these companies is much more convincing than the rise in shares of Netflix.

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The article Is This Rally for Online Retailers Sustainable? originally appeared on Fool.com and is written by Lior Cohen.

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