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The e-commerce behemoth Amazon (NASDAQ:AMZN) has recently reported its earnings in which it missed the revenues estimates but easily beat the earnings expectations, which were already very low. Its rival eBay (NASDAQ: EBAY) also reported its quarterly results in which it also missed the top line estimates. Both of the companies are facing difficulties in the international operations. Ebay has been doing a major overhaul of its seller fees to become more competitive. Meanwhile, the value of Amazon's stake in LivingSocial continues to fall while its rival Groupon (NASDAQ:GRPN) has added billions to its market cap. Both Amazon and Groupon are betting their long-term survival on growing in non-core areas.

Earnings Review: Amazon and ebay

Amazon reported its Q1-2013 earnings a few weeks ago in which its revenues rose 21.9% to $16.07 billion, below expectations of $16.16 billion. The net income dropped by 37% to $82 million or $0.18 per share but was far more than the analysts' estimates of just $0.09 per share.

The company's revenue growth was significantly lower than what it reported a year ago. In North America its revenue rose by 26.4% year-over-year to $9.39 billion while in International Market revenue rose 16% to $6.68 billion. The North American and International Market growth numbers in the same quarter last year were 36% and 31% respectively.

Amazon: Revenue by Segments

North America

2012

2013

% Change

(In Million)

(In Million)

Media

$2,197

$2,513

14.38%

Electronic and General Merchandise

$4,772

$6,128

28.42%

Other

$458

$750

63.76%

Total

$7,427

$9,391

26.44%

International

Media

$2,513

$2,545

1.27%

Electronic and General Merchandise

$3,203

$4,086

27.57%

Other

$42

$48

14.29%

Total

$5,758

$6,679

16.00%

The fall in earnings was expected as Amazon is not only keeping pace with the rising number of online shoppers but it is also investing heavily in new projects. The business is building new distribution centers around major cities, increasing its workforce (the number of employees increased by 39% in a year) and spending on technology and content (set-top boxes and a possible smartphone). As a result, its expenditure has been up by 22% to $15.89 billion.

In essence, Amazon has been sacrificing the short-term gains for its long-term survival. The markets seem to have accepted this argument and its stock continues to rise in anticipation of future earnings. Its median P/E on next year's estimates is now a lofty 90.12, despite the current drop in earnings. While some have called it an 'ultimate buy', others, like myself, have decided to stay away.

Ebay's revenues increased by 14% to $3.75 billion while its earnings rose by 19% to $677 million, which translated into adjusted EPS of $0.63 per share, 1 cent above analysts' estimates. Growth in revenue was due to strong performance of PayPal in both consumer and merchant services. The revenues from PayPal business rose 18% to $1.5 billion.

However, like Amazon, Ebay has also missed the top line estimate, by $20 million. The management attributed some of the decline to "a weaker Europe and British pound." As indicated above, Amazon's growth in international operations has considerably slowed down.

On a positive note, Ebay has also reminded investors that the new users it is adding are in the early stages of their cycle so their spending is expected to increase in the coming quarters.

ebay: Seller Fees

To compete with Amazon, Ebay has changed its seller fees to attract merchants from Amazon. Analysts have identified that Ebay's complicated system drives sellers away from the company. I believe that the business is now moving in the right direction. The entire system is becoming relatively simpler with significant reductions in up-front costs, particularly for the smaller merchants. Ebay plans to charge sellers between 4% and 10% while it is doing away with the listing fees for most of the items.

Living Social vs Groupon

Amazon has a 29% stake in LivingSocial, the daily deals and Lifestyle company, which competes with Groupon. In its recent quarter, LivingSocial swung to a net loss of $50 million from a profit of $135 million a year ago -- that profit primarily came on the back of an adjustment in asset valuation. Its revenues rose 23% to $135 million. So far, Amazon has invested more than $250 million in LivingSocial. The company's book value continues to deteriorate and has dropped to just $36 million from nearly $1.5 billion two years ago. The only improvement came due to the massive restructuring and cost cutting initiatives as its operating loss narrowed from $91 million a year ago to $44 million.

On other hand Groupon's revenues rose 7.5% to $601.4 million, beating the estimates by $12.5 million while its loss shrunk to $4 million from $11.7 million a year ago. The company is putting impressive numbers on mobile, which I believe is a very good thing since mobile customers' expenditure on Groupon is 50% more than PC customers. In March, the company recorded 45% of its total North American transactions from mobile devices, which was 30% last year.

On the management front, the interim co-CEOs Eric Lefkofsky and Ted Leonsis are still hunting for a new CEO but they believe that it is unlikely that they will get one in 2013.

LivingSocial and Groupon are now going in different directions as they look to expand from their conventional local daily deals business models. While LivingSocial is eyeing experiences and events, Groupon is targeting selling overstock items. In fact Groupon Goods has been so successful that it was able to offset the falling daily deals business. But this is a low margin operation so its growth is going to drag the margins of the entire company. Meanwhile, the guy who has been heading the unit, Faisal Masud, has now left the company for Staples. Unlike Andrew Mason, this I believe is a big setback for Groupon.

Stock Update

In the last six months, Groupon's shares have increased by 87% as it added $2.2 billion to its market cap, which now stands at $4.79 billion. In the corresponding period, Amazon and Ebay have been up 10.5% and 11.86%.

Amazon's shares are hovering around $262 while Ebay is trading at $54.40. The data collected by MarketWatch recommends an average price target of $313.47 for Amazon and $63.86 for ebay.

AMZN

GRPN

EBAY

Stock 6M

+10.47%

+87.10%

+11.86%

P/E

N/A

N/A

27.53

EPS

-0.19

-0.09

2.06

Yield

N/A

N/A

N/A

ROA

1.71%

2.64%

5.78%

ROE

-1.11%

-6.85%

13.64%

source: Yahoo Finance

Source: Earnings Review: Looking For Positives In Amazon, eBay And Groupon