Online retailing represents the single biggest change in direction of selling goods and services in history. The 1990's were the beginning of a phenomenon that has resulted a surge of online sellers. Some specialize in certain market sectors, such as Bluefly (NASDAQ:BFLY), which sells designer clothing and accessories and Netflix (NASDAQ:NFLX), which sells books, movies and music. Overstock.com (NASDAQ:OSTK) is a mass market merchant along with eBay (NASDAQ:EBAY), which sells all manner of goods and services through its platform through multiple independent vendors on its site. Other companies that have a large online presence for selling goods are industry giants Amazon.com (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), Oracle (NYSE:ORCL) and Apple (NASDAQ:AAPL). Large and small retailers usually have some kind of web presence. Companies that began life selling on the web have had different growth trajectories than traditional bricks and mortar sellers. But challenges in growth still boil down to the same denominator: How do retailers drive customers to purchase goods, and how do retailers retain customer loyalty?
In the online world, retaining loyalty is essentially the same exercise as traditional retailing. Delivering the goods faster, better and cheaper than the competition will attract and keep customers. The ability to drive customers is different in that the buyer is not walking into a physical location where a person can find what they are looking for based on the store layout, signage and display of goods. Online buyers want to find what they need or want at the click of a button.
Online purchasers want ease of use on the site offering merchandise. They want fast delivery and they expect goods to be delivered to them in short order and in new condition when the good arrive. The ability to drive customers to web sites lies in good marketing and advertising in effective media sectors. While social media has changed where and how marketing takes place, it still relies on the same tenets as traditional marketing and advertising. Advertising professionals have now made social marketing a powerful niche in exploiting that avenue through aggressive campaigns, and in some cases, mimicking individual word of mouth advertising with carefully crafted campaigns designed to look like actual consumer reporting on products and services.
Online selling companies have been through some growing pains, some with more success than others. Opportunities exist in this niche and there are several companies to choose from when making an investment in this market sector.
Amazon is a leader in its field. Amazon currently trades at $259. It has a year high of $262 and a year low of $259. It has a price earnings ratio of 316.25 and earnings per share of $0.82. Amazon has total cash of $4.97 billion in cash and no debt. Its book value per share is $16.60 and no trouble meeting its current liabilities with a current ratio of 1.08. The company is 86% owned by institutions and insiders. There is some wiggle room for retail investors in this stock. It is a tremendous success story. It started as an online bookseller and morphed its business to being one of the largest online retailers in the world. It recently started charging buyers sales tax which will have some effect on the share price as those tax liabilities hit the income statement. The company has loyal customers and content shareholders, a good combination for a retailer.
eBay currently trades around $50. The price earnings multiple is 17.61. The earnings per share are $2.84. As online retailers go, eBay has solid financial numbers. It has positive year over year quarterly earnings growth of 114.5%, total cash of $5.75 billion, and debt of $2.08 billion. It has $1.95 to cover every $1 of debt it currently has. Its book value per share is $14.68 which makes its price to book ratio one of the best in the online retail world. The float is locked up by insiders and institutions which hold almost 93% of the shares. That being said only 1% of the float is short. The company also owns the online payment system, PayPal. This accounts for almost 40% of its revenue. The world economy drove a lot of customers and vendors to eBay, making it one of the companies that may discussed in the futre as recession proof.
Overstock.com has been trading around $10.34. It has negative earnings per share (NYSEARCA:EPS) of -$0.34. The company has cash flow problems with negative profit and operating margins. It has a current ratio of $0.94 indicating that it has difficulty covering current liabilities. On the plus side it has total cash of $60 million and total debt of $17 million. It has a book value per share of $0.75. Of interest is that 58% of the shares are in the hands of institutions and insiders and the float is 44.6% short. The stock appears to be trading up. Short covers will account for this.
Amazon and eBay have huge traffic and the numbers to support performance. Ebay has a series of templates available to multiple sellers to assist eBay vendors with creating and maintaining user friendly, compelling web pages to generate traffic and revenues. Amazon has expended a great deal of time and money in adapting its portal to multiple platforms to sell a wide variety of goods. Web site ease and checkout has become a big issue with consumers. Consumers don't want to deal with multiple levels of check out to purchase a few items. Security features have to be streamlined to make this possible. Merchandising on web sites are the main attraction. People want high end displays regardless of the value of the goods sold. Websites that are budget in appearance and budget in terms of ease of use rarely keep buyers coming back for more.
Microsoft, Oracle and Apple all have applications and platforms, both in traditional and cloud based that assist retailers in creating platforms and web pages to assist online retailers. eBay offers its own templates to assist vendors with presentation and its ownership of PayPal makes the checkout process much easier.
Another interesting company, templatemonster.com operates in the niche of website templates production. It offers turnkey CMS Facebook templates, blog templates, Joomla and Drupal templates and e-Commerce templates. It offers bolt on products that every company can use to create an online presence in a cost effective and easy to use manner. It has attractive templates for every kind of business. Designer testimonial on the site sing the praises of the templates. It has a global presence and will be worth watching to see how it grows and evolves in the online commerce realm.
The idea behind the online retailing boom was that customers were not absorbing capital costs of the retailers for fixed assets in the purchase price of goods. That all changed very quickly when the ability for a company to pay for and keep up with technological advances that drive the online platforms started to meet or exceed standard bricks and mortar costs. Online consumers demand ease of use and navigation and online retailers have had to pay dearly for the rapidly changing technology that provides these demands. Supply and availability of goods along with customer service personnel who oversee shipping and track shipments are among other cost considerations.
The online survivors, some of which are mentioned here have all provided a good insight into the business. Overstock.com is worth a look for those traders looking for excitement. eBay is for the more conservative investor who wants online retail exposure but there is very little room for retail investors in this stock. Amazon has a thin trading range and little room for retail size investors, but it is a solid company that has demonstrated staying power, it is worth a risk to investors who are interested in gaining exposure in this space.
Quality of goods sold and services associated with delivering determine loyalty once customers have made their purchase. Access determines how successful online retailers or individual eBay sellers will be able to put up sites. Ease of use determines this factor. Consequently, some pretty slick web portals exist, whether or not they deliver in quality of goods and service remains at the discretion of the individual or corporation that serves the clients.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.