Amazon vs. eBay: Which is a Better Investment?

Two very different companies trading at two very different valuation multiples. But which is a better financial investment?

eBay (EBAY) closed the day Monday at $38.58 per share giving it a $52.4B market cap. For this price you get 2007E and 2008E earnings of $1.6B and $2.0B. This yields a 2007E and 2008E P/E of 32.7x and 26.2x respectively. In addition, EBAY has a pristine balance sheet with net cash of about $4B which, in essence, means their "clean" P/E ratios are actually lower still.

Amazon (AMZN) closed the day Monday at $92.59 per share giving it a $38.3B market cap. For this price you get 2007E and 2008E earnings of $0.5B and $0.8B. This yields a 2007E and 2008E P/E of 76.6x and 47.9x respectively. AMZN also have a relatively clean balance sheet but do not dispose of a net cash position nearly as large as EBAY's.

So based on the price of 2007 and 2008 earnings, Amazon is between 1.8 and 2.3 times as expensive as eBay. While 2007 and 2008 earnings will certainly deviate from my estimates, it is nonetheless apparent that Amazon is attracting a very substantial premium to eBay even when considering blowout 2007 and 2008 results. This can only hold if investors are convinced that Amazon's prospects for 2009 and beyond continue to be that much better. And that, in my opinion, is pure speculation.

Comments

[Molly:]

You are ignoring a fact the AMZN had a dismal year in 2006 and if you look at their 2004 earning. it is about the same as 2007. The question is if the growth is sustainable into 2008

2007 Sep 29 10:43 AM