March 29, 1999
A tale of two auction stocks
By Om Malik
Indexes (Apr 2, 1999 5 PM)
DJIA 9833.00 0.00 0.00%
S&P 500 1293.72 0.00 0.00%
NASDAQ 2493.37 0.00 0.00%
EW YORK. 2:00PM EST—Internet stocks are crazy. If you need proof, check out the stock performance of two market leaders--Amazon.com (nasdaq: AMZN) and eBay (nasdaq: EBAY).
On March 29, Amazon.com of Seattle announced that it will add auctions to its web site and as a result the stock is up almost 9 1/2 to 149 1/16. On the other hand, eBay--which announced a deal with Time Warner (nyse: TWX), where eBay will be featured on all Time Warner web sites--is losing ground and is down 4 3/4 to 149 3/4 for the day.
The negativity on eBay is uncalled for, given that Amazon.com does not yet have its auction service up, and it will be a couple of months before the momentum behind the service begins. eBay--which Amazon.com wishes to unseat--has more than 2.4 million users, and they spend almost 140 minutes on the web site every month.
The Time Warner deal and the $75 million the San Jose, Calif.-based eBay is paying America Online (nyse: AOL) for promoting its service are surely going to add still more numbers to the growing legion of eBay fans.
"We regard this as excellent news for the company and the stock," says Henry Blodgett, the Internet analyst at Merrill Lynch and a longstanding bull on Amazon.com. Perhaps his pounding the table helped push Amazon stock higher. Amazon.com has a market capitalization of $20.5 billion versus eBay's market capitalization of $18.7 billion.
"Based on its impressive track record in books, music and videos, as well as the competitive advantage provided by its large customer base, we believe that Amazon.com stands a good chance of becoming a leader in C2C (consumer to consumer) auctions. This would have very positive implications for the company's long-term," writes Blodgett in his morning note to Merrill Lynch clients.
"I think eBay is very strong in its area at this point. While Amazon may become a new competitor, eBay has a lot of heft," says Fiona Swerdlow, digital commerce analyst for N.Y.-based research firm, Jupiter Communications. She thinks that while auctions add a new layer to the Amazon.com's retail empire, it might be too soon to call it a victor in the auction space.
Anyway, from the look of things, Amazon.com has demonstrated a checkered performance--high growth, no profits and declining margins. Take for example the company's book business, for example. Amazon.com has an average ticket size (or order size) of $30 versus Fatbrain.com (nasdaq: FTBN), formerly ComputerLiteracy.com, which carries an average ticket size of $124.
Fatbrain.com has a higher ticket value because it sells more expensive technical books, while Amazon.com sales come from more popular books. Both companies have about a 20% margin on the books they sell--$24.80 for Fatbrain.com and $6 an order for Amazon.com. Since both companies spend about $7 on fulfillment of the orders, Fatbrain.com ekes out more money per sale.
This minor issues notwithstanding, it seems Amazon.com is the auction flavor of the day.
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