Amazon Amazes, EBay Not

While analysts are still debating whether the recession has eased its grip, Amazon (NASDAQ: AMZN) is one company that seems to be sure of the economy recovering. The stock recently hit an all-time high of $118.49, surpassing the $106 reached in December 1999. This is surely one player who knows its strategy well.

Q3 revenues rose 28% to $5.45 billion compared with the market’s expected $5 billion. EPS of $0.45 grew by 67% over the year and shattered the market’s expected $0.33. Amazon attributed its stellar performance to Kindle. While Amazon still does not break out the numbers, analysts estimate Kindle sales at 1.5 million units and over $700 million in revenues. According to the company, Kindle is the most popular product on the site.

By segment, Media revenue grew 17% over the year to $2.93 billion while Electronics and General Merchandise (EGM)  revenue grew 44% over the year to $2.36 billion. By region, North American revenues grew 23%, compared with 33% growth in international revenues.

Amazon’s success can be gauged from comScore’s data, which shows that U.S. Web traffic to the site rose 14.8% last quarter compared with overall growth in U.S. Internet traffic of only 3.5%. In some other metrics, active consumer accounts grew by 17% to more than 98 million. Worldwide seller accounts grew 24% to 1.8 million.

Forrester estimates that 3 million e-readers will be sold this year compared with 1 million a year ago. Kindle is in for some competition in this growing market. Last week, Barnes & Noble marked its entry into electronic reading device with Nook, which while priced similar to Kindle has many more user-friendly features to offer and, according to New York magazine, looks good as well. Additionally, Barnes & Noble also offers over 1 million titles compared with Amazon’s 350,000 titles. (Although some users are saying that Kindle has a better selection outside of works in the public domain and current bestsellers.) Kindle will also need to watch out for competition from the tablet device from Apple expected to be released next year. Apple’s version is expected to have audio, video, and interactive graphic content besides an ordinary downloaded text, in an attempt to change the way people read books.

Amazon recently reduced the Kindle price by another $20 and also announced the launch of the international version with access to downloadable 3G speeds in more than 100 countries at no extra charge. The unit boasts of being able to hold 1,500 books and also has a variant offering a bigger display screen.

Amazon is also facing stiff competition from other online retailers. They are already engaged in a book price war with WalMart.com and Target.com. Wal-Mart wishes to become the low-price leader in e-retailing and launched a scheme offering 10 new hardcover releases at $10 each. Amazon made a similar offer at their site. When Wal-Mart reduced the rate by a dollar, Amazon and Target followed.

Meanwhile, Amazon does not seem perturbed by the competition and is projecting Q4 revenues to be in the range of $8.125 billion to $9.125 billion, compared with analysts’ expected revenue of $8.13 billion. They are projecting operating income to grow between 11% and 46% to $400 million to $525 million for the quarter.

And today, the company announced a further addition to its cloud service by offering a relational database function. Amazon’s cloud ambitions are significant.

Amazon’s stock is currently trading at $118.49, taking its market capitalization to $51.2 billion.

If Amazon is making news with its good reports, eBay is continuing to flounder. Q3 revenues of $2.2 billion grew 6% over the year and managed to exceed the market’s expected $2.1 billion target. EPS of $0.38 was also a cent higher than the expected $0.37. This was the company’s first revenue growth in the past year.

PayPal’s revenues of $0.69 billion grew 15% over the year helped by 19% growth in active user accounts. Marketplace revenues fell 1% to $1.4 billion. Skype, which now has more than 520 million accounts, saw revenues grow 23% over the year.

At the end of the quarter, PayPal had 78 million active user accounts. Driven by a better checkout process and the growing adoption of e-payments, PayPal’s penetration on eBay grew 6% over the year to 66% globally. They recently integrated their Bill Me Later service into the PayPal wallet on eBay and across e-commerce sites, thus giving their consumers a wider choice of online payment methods.

Both PayPal and Bill Me Later are seeing increasing adoption rates. Nearly 44 of the top 100 US retailers now offer PayPal, and 24 of them offer both PayPal and Bill Me Later. The trend is not restricted to retail and has extended to airlines and charities as well. PayPal’s growth path in Asia is also strong; 12 of the top 100 online retailers have adopted PayPal as a payment mode. PayPal has also tied up with Japanese payment gateways SP Veritrans and E-Context, to expand its reach in the region. The two gateways have access to over 20,000 Japanese merchants and target nearly $11 billion worth of online sales.

eBay is innovating within PayPal and recently launched a student account focused on the teenage segment. They also opened PayPal to third party developers for them to “use PayPal’s global platform to incorporate a fast, easy and secure payment service into a wide range of applications, including mobile payments and micropayments.”

While overall numbers were still not as vibrant as Amazon’s, the slowdown in the pace of reduction in the marketplace segment was reason enough to cheer. Revenues fell 1% in the quarter compared with the 14% drop recorded a quarter ago and the 18% reduction reported two quarters ago. Gross merchandise volume, excluding vehicles, grew 7% to $12.2 billion. The company is bringing more secondary market inventory on to eBay. For instance, in North America, Dell, Golf Smith and other leading e-retailers opened an eBay store. In Europe, the company opened eBay online outlet malls in the United Kingdom and Germany.

EBay is looking to improve the user interface. For instance, across consumer electronics and media, the company has moved to a product or catalog style shopping experience. Yet, eBay is still a long way off from the personalized feel that Amazon offers, and the company also faces competition from the likes of Wal-Mart and Sears as these two players join the e-retailing business.

EBay recently launched a test diamond tool to let users design their own diamond rings. I still stand by my belief that eBay would have been much better off purchasing Blue Nile instead of designing an in-house tool, but chances are Amazon will get to that first.

EBay is thankfully going ahead with the proposed sale of its stake in Skype. The company is selling 65% of Skype for $2.75 billion and retaining 35% ownership for itself.

EBay projects revenue of $2.2 billion to $2.3 billion compared with the Street’s expected $2.3 billion and an EPS range of $0.38 to $0.40 compared with analysts’ expected $0.40.

The stock has been steady in the low- to mid-twenties and is currently trading at $23.56 with a market capitalization of $30.5 billion.