- Players are stepping on each other’s toes, significant acquisitions are coming and opportunities still abound.
Almost 15 years after the advent of e-commerce, it is interesting to take stock of how its market leaders have progressed. All the pioneers are stepping on each other’s toes. For instance, Amazon’s logical progression will inevitably lead it into Netflix’s territory; Amazon is already squarely in eBay’s. The end of this movie is yet unknown. Will Amazon eventually end up acquiring Netflix?
Amazon, eBay ( EBAY – news – people ) and Netflix ( NFLX – news – people ) announced their earnings results last week, and all of them seem to have performed better than expected.
In fact, Amazon seems to be finally edging its way out of a largely retail business model that was giving it serious bottom-line challenges. What is all the more surprising is that Amazon is doing it in this sordid economic climate.
- First-quarter revenues grew an impressive 18% to $4.89 billion; earnings per share grew 17% to 41 cents, compared to 34 cents a year ago. Amazon handily beat analysts’ estimates of 31 cents per share on revenues of $4.75 billion.
Amazon continued to remain silent on details of Kindle sales but did say that the number was higher than their expectations. This week they also acquired Lexcycle, the company behind Stanza, a popular free E-Book application for the iPhone. In its effort to enhance margins, I am also anticipating that Amazon will acquire another Seattle company, BlueNile, a diamond jewelry seller.
EBay’s performance was less bright than Amazon’s. First-quarter revenues of $2 billion were marginally higher than the Street’s expectations of $1.9 billion, but they were down 8% from the year-ago quarter. Earnings per share of 39 cents were also higher than the Street’s expectations of 34 cents, but 7% lower than they were in a year ago.
EBay’s core auctions business revenues fell 18% to $1.2 billion due to a 20% drop in the site’s Gross Merchandise Volume. This was despite some big offers, such as free shipping on nearly 30% of items sold on the site.
PayPal, however, continued to perform well, increasing the number of registered users by 22% to more than 184 million. PayPal is now also being used by third party e-commerce sites, like Sears, and continues to enjoy a near monopoly in the segment.
Skype also performed very well: First-quarter revenues grew 6% to $150 million and the company added 37.9 million users. Nonetheless, eBay is finally getting out of Skype. It took a long time, but I am glad to note that John Donohoe’s strategy to turnaround eBay includes spinning off Skype through an IPO.
Besides Skype, eBay is also divesting StumbleUpon. I like the fact that Donohoe is starting to deal with mistakes like Skype. But it is still unclear where eBay is headed. Is acquiring MercadoLibre part of its strategy? It could certainly give eBay an excellent growth engine in Latin America.
According to comScore, Amazon has 60 million visitors on its shopping site compared with 50 million a year ago. By comparison, eBay has 70 million visitors, down from 80.1 million a year ago. So, Amazon has the potential to overtake eBay. I have not been bullish on eBay for a while now and have been anticipating this all along.
In the quarter, Netflix’s subscriber base increased nearly 10% to 10.3 million from the previous quarter. The addition of 920,000 net subscribers was the largest ever addition in the company’s history.
Netflix also said it continued to invest in consumer electronics manufacturers and hopes to form tie-ups so that within a few years, all Internet-connected consumer devices will include a Netflix streaming client.
Netflix, however is facing stiff competition from the DVD rental kiosks operated by Redbox. These kiosks are located in areas that have significant foot traffic, and Redbox charges only a dollar a day for movie rentals. Netflix is aware that with further refinement to the system, the kiosks will be able to make money in the next three years and be present “in every 7-Eleven, every Starbucks and every airline gate.”
In fact, Netflix’s churn rate has edged up as subscribers cite kiosks as the reason for moving out. Still, Netflix said it’s not too concerned about the kiosks because they focus on newly release DVDs, which constitute only about one-third of Netflix’s rental business.
Every time I look at Amazon, eBay and Netflix, they remind me of John Doerr’s famous quote, “The Internet is under hyped.” To think that most of the world–large parts of Asia, Africa, Latin America, China–are not yet on the Internet, is a sobering thought.
Can you imagine how many more significant businesses are yet to be built as the next billion get online?