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Amazon vs. eBay: Which Stock to Pick, Pre-Earnings?
Stock Analysis & Ideas

Amazon vs. eBay: Which Stock to Pick, Pre-Earnings?

The COVID-19 pandemic resulted in an unprecedented digital transition, as people moved to extensively ordering online items including masks, PPE kits, groceries, and other products. That’s because movement and timing restrictions resulted in difficulties in procuring these items.

Using the TipRanks stock comparison tool, we will compare two popular online merchandise companies, Amazon, and eBay, and examine how Wall Street analysts feel about these stocks.

Amazon (AMZN)

Amazon is expected to announce its Q3 results on October 28. In Q3, the e-commerce giant anticipates net sales to range between $106 billion and $112 billion, representing an increase of between 10% and 16% year-over-year.

Operating income is projected to range from $2.5 billion to $6 billion in the third quarter, versus $6.2 billion in the same quarter of last year.

On the company’s Q2 earnings call, Amazon’s CFO Brian Olsavsky elaborated further on the revenues growth rate, stating, “Since May 15, again, excluding Prime Day, our year-over-year growth rate has dropped into the mid-teens. Our Q3 revenue guidance range of 10% to 16% growth reflects an expected continuation of this trend.”

Furthermore, Olsavsky added that the company expects “this pattern of difficult year-on-year revenue comps to continue for the next few quarters.”

Monness Crespi Hardt analyst Brian White expects that AMZN will meet the analyst’s revenue forecast of $111 billion (a growth of 15% year-over-year) and the earnings estimate of $9.05 per share.

The analyst added that given that Prime Day was held in the second (June) quarter, rather than the traditional July timeframe, it is likely that the company is likely to experience a first sequential quarter-over-quarter decline in net sales in Q3.

White is bullish, with a Buy rating and a price target of $4,500 (34.9% upside) on the stock.

When it comes to Amazon’s cloud services business, Amazon Web Services (AWS), White expects AWS to register a year-over-year growth of 33% with revenues of $15.4 billion in Q3. (See Analysts’ Top Stocks on TipRanks)

In Q2, AWS posted revenues of $14.8 billion, up 37% year-over-year and comprising 13% of the company’s total revenues of $113.08 billion. Furthermore, reflecting the upward trajectory of this business, the company’s management said on its Q2 earnings call that currently, AWS is “a $59 billion annualized run rate business, and that’s up from $43 billion at this time last year.”

Analyst White is also positive about AMZN’s growth across its different segments including e-commerce, Alexa, digital media and advertising. However, the analyst cautioned that as “Amazon continues to aggressively invest back into the business to grow at a rapid rate, the company’s profitability is well below its long-term potential.”

As a result, the analyst believes that “traditional P/E metrics are not applicable, nor other profit metrics, thus we value the stock on an enterprise-value-to-revenue ratio.”

Turning to the rest of the Street, Wall Street analysts are bullish about Amazon, with a Strong Buy consensus rating based on 31 Buys.

The average Amazon price target of $4,180.13 implies 25.3% upside potential from current levels.

eBay (EBAY)

eBay is an online marketplace that connects buyers and sellers in 190 markets around the world. The company is expected to announce its Q3 results on October 27.

In Q3, eBay anticipates earning revenues between $2.4 billion to $2.47 billion, with an organic currency-neutral growth rate between 6% and 8% year-on-year. Adjusted diluted earnings are expected to come in between $0.86 per share and $0.90 per share.

Currently, the company is in a transition phase. In July this year, eBay announced that it will reduce its 44% stake in Adevinta, an online classified marketplace, to approximately 33%. The company will sell around 125 million Adevinta shares, with an option to sell an additional 10 million shares to Permira, an investment firm, for approximately $2.25 billion in cash. The transaction is expected to close in the fourth quarter of this year.

In addition, eBay will sell off 80% of its business in Korea, for around $3 billion, to Emart. The deal is likely to close by the end of this year or early next year.

Jamie Iannone, eBay’s President and CEO, commented on its Q2 earnings call, “These portfolio changes allow us to intensify our focus on the core eBay business moving forward.”

It seems that the company’s core business is doing well, as Robert W. Baird analyst Colin Sebastian’s ebay.com tracker seemed to indicate that “volume trends are directionally in-line with estimates.” Furthermore, the analyst added, “In our tracker, Q3 volume is ~15% above comparable 2019 levels.”

The analyst is bullish, with a Buy rating. He raised the price target from $70 to $80 on the stock.  

Moreover, Sebastian is of the view that the company’s “Managed Payments will provide significant boost to revenues and profits over the next 2-3 years.”

Managed Payments is eBay’s own payment platform that processes payments for purchases through eBay. Indeed, in Q2, 71% of buying on eBay was processed through Managed Payments. Moreover, the company’s management commented on its earnings call, “We exited Q2 at a run rate over 80% and are on track to process over 90% this quarter.” (See Top Smart Score stocks on TipRanks)

The analyst is also positive about the company’s advertising momentum, growth in e-commerce, and focus on technology.

 Turning to the rest of the Street, Wall Street analysts are cautiously optimistic about eBay, with a Moderate Buy consensus rating based on 6 Buys and 8 Holds.

The average eBay price target of $76.57 implies approximately 5% downside potential from current levels.

Bottom Line

Analysts are bullish about Amazon while they are cautiously optimistic about eBay. Based on the upside potential over the next 12 months, Amazon does seem to be a better Buy.

Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this article​.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

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