Internet Retailing Industry

Created by: John Flood

Adolfo Saucedo Cuong Vu

Karolina Zonsius

Table of Contents

Executive Summary………………………………………………1 Business & Management overview……………………………………………….2 Macroeconomics Analysis………………………………………………..4 Industry Analysis……………………………………………….6 Financial Ratios………………………………………………….13 News & Special Issues……………………………………………………16 Bibliography……………………………………………21

Executive Summary We chose eBay and Amazon because we felt that these two companies were

strong businesses that survived the “.com bust” and actually posted increases in revenues.

But what we did not know was that even if this was true, Internet retailing can be a very

volatile industry to invest in. eBay and Amazon are fairly new businesses that are just

experiencing growing pains that all business have. Both businesses are continuing

growing by acquisition, investments, and expansion. Analysts believe both Amazon and

Ebay are still in their early phase and are poised for growth in the long run with their

investments today, even if that means stock value dropping.

eBay has been successful to date and their management team has demonstrated

that it can prosper, as it has done so far. There are consumer demands around the globe

for products/services available in eBay's marketplace. eBay has been integrating recent

acquisitions and executing its business plan effectively through new technologies.

Although there have been negative publicity generated as a result of conduct by users of

eBay and eBay itself, expansion into new emerging markets has been the goal of eBay,

and they have been successful in that. eBay's future success will depend on the

performances of its executive and senior management, key technical personnel, and its

continuing ability to find and retain highly qualified technical and managerial personnel.

Sales growth for Amazon has been moderate, reflecting a maturing business and

increasing competition. Amazon’s ongoing strategy of trading off gross profit dollars to

maintain price leadership and to drive sales conversions is hurting their profits right now.

To sustain longer term sales growth and profitability, Amazon needs consumers to buy

without promotions, which is why they are investing in customer retainer-ship presently.

They are offering the lowest prices and free shipping in the short term, so they can build

customer loyalty for the longer term, but we won’t know when that term will come.

Lower than projected revenues are due to reduced consumer spending and Amazon’s

failure to enter into and maintain agreements and strategic alliances other with merchant

partners. By most measures, Amazon has little or no current value; it has only minimal

book value. Liquidating Amazon today would leave its investors with nothing. But the

market thinks the company's future profit potential is great. They believe that Amazon’s

investment of low prices will benefit them in the long term. Since Amazon is far from

profitable right now, the stock price is based almost entirely on expectations of future

growth. That's one reason Amazon's stock is so volatile: As those expectations rise and

fall, so does the price of its stock.

With the above information, we recommend investors to BUY/HOLD eBay

stock, and BUY/SELL Amazon stock. Both companies share value fluctuate on a daily

basis, but we believe eBay is a stronger firm, with plans for the present and future,

whereas Amazon is looking ahead for the long run numbers.

Business & Management Overview

eBay

As you may already know, eBay Inc. developed an Internet-based community in

which buyers and sellers are brought together to buy and sell almost anything. The eBay

online service permits sellers to browse through listed items in fully automated, topically

arranged service that is available online seven days a week. Through the Pay Pal service,

the company enables any business or consumer with e-mail in 38 countries to send and

receive online payments. As of December 31, 2003, through wholly owned and majority-

owned affiliates, eBay had web sites directed in the United States, Canada, Germany,

Australia and other 17 countries.

Today, the eBay community includes more than a hundred million registered

members from around the world. People spend more time on eBay than any other web

site, making it one of the most popular shopping destinations on the Internet. The

following shows the complete roster of the key executives that run the company

successfully every day of the year:

Executive Team Source: Ebay.com Pierre Omidyar, Founder and Chairman of the Board

Meg Whitman, President and CEO

John Donahoe, President, eBay Marketplace

Maynard Webb, Chief Operating Officer

Rajiv Dutta, Chief Financial Officer

William C. Cobb, President, eBay North America

Matt Bannick, President, eBay International

Jeff Jordan, President, PayPal

Scott Thompson, Senior Vice President and Chief Technology Officer, PayPal

Lynn Reedy, Senior Vice President, Product, Development and Architecture

Michael Jacobson, Senior Vice President and General Counsel

Henry Gomez, Senior Vice President, Corporate Communications and Government Relations

Alex Kazim, Senior Vice President, New Ventures

Beth Axelrod, Senior Vice President, Human Resources

Amazon

Amazon.com is considered a pioneer in online retailing, it expanded during the

late 1990s to offer the “Earth’s Biggest Selection” of books, electronics, toys, tools,

apparel, and many more. The company competes great internationally as they operate in

six global web sites. Through third-party agreements, Amazon.com also sells products

from well-known retailers including Toysrus.com, Target Corporation, Circuit City

Stores, Borders Group and Hotwire. Although the company is sometimes criticized for

its focus on market share over profits, Amazon.com put investor’s fears to rest when it

secured its first net profit during the fourth quarter of 2001. The following table shows

the Amazon.com officers that make the company stay competitive in the industry.

Officers

Jeffrey P. Bezos President, Chief Executive Officer and Chairman of the Board

Rick Dalzell Senior Vice President, Worldwide Architecture & Platform Software, and Chief Information Officer

Jeffrey Holden Senior Vice President, Discovery

Jason Kilar Senior Vice President, Worldwide Application Software

Mark S. Peek Vice President, Chief Accounting Officer

Diego Piacentini Senior Vice President, Worldwide Retail & Marketing

Kal Raman Senior Vice President, Worldwide Hardlines Retail

Mark V. Stabingas Senior Vice President, Worldwide Business Development And Services Sales

Tom Szkutak Senior Vice President and Chief Financial Officer

Jeff Wilke Senior Vice President, Worldwide Operations and Customer Service

Michelle Wilson Senior Vice President, General Counsel, Secretary

Source: Amazon.com

Macroeconomics Analysis

Many industries are receptive to the economy cycle and the Internet Retail

Industry is one of them. Ebay Inc. and Amazon.com are cyclical companies in nature.

The industry tends to follow the economy as well as having trends like a seasonal

company. They mostly get their revenue in the third and fourth quarters and in contrast

they loose a lot of money in the first two quarters.

Some of the factors that affect both companies are unemployment rates, inflation

rates, and GDP rates. The industry tends to follow these three rates tremendously. When

the economy is doing outstanding, the companies tend to follow the same route as the

economy figures. The opposite turn is when the economy is doing badly; the industry

also follows the same path. As cyclical industry it runs into deep conflicts with the

economy because the customers tend to get scare of buying products from the companies

because the economy is doing badly. In some sense the products in Ebay Inc. and

Amazon.com act as luxury items.

The unemployment rate is an important aspect of how the economy is running.

Also, it reflects a great portion on how the Internet Retail is doing and make educational

forecast on how the companies within the industry are going to be in the future. The

following table shows some important data on how the U.S. unemployment rate is doing:

Quarterly Averages: Monthly data of 2005: 2004 2005 January February March 5.4 5.3 5.2 5.4 5.2

The unemployment rate has been having great figures the last two years. It has made

great improvements and is recovering from the recession. Since the September 11

terrorist attacks the rate had been flirting at 7% and the last couple years have dropped to

an average of 5.3%. Since the economy is making astronomical improvements the

industry has responded by also improving with a better and more attractive profit margin

in both respective companies.

The inflation rate also is also great indication on how the economy is progressing.

This is a condition when prices are going up. We all know from economics from the

price and demand graphs that show when prices go up you are going to have fewer

customers in your business. This is no exception within the Internet Retail industry. The

inflation rates do reflect the overall performance of the companies. Ebay Inc. is a great

example as to why the stock price keeps falling and is because the inflation rate has been

increasing the last four months. The following table shows the performance in the U.S.

in exact figures on the last 6 years of inflation rates data:

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov` Dec Ave 2005 2.97 3.01 3.15 - - - - - - - - - - 2004 1.93 1.69 1.74 2.29 3.05 3.27 2.99 2.65 2.54 3.19 3.52 3.26 2.68 2003 2.60 2.98 3.02 2.22 2.06 2.11 2.11 2.16 2.32 2.04 1.77 1.88 2.27 2002 1.14 1.14 1.48 1.64 1.18 1.07 1.46 1.80 1.51 2.03 2.20 2.38 1.59 2001 3.73 3.53 2.92 3.27 3.62 3.25 2.72 2.72 2.65 2.13 1.90 1.55 2.83 2000 2.74 3.22 3.76 3.07 3.19 3.73 3.66 3.41 3.45 3.45 3.45 3.39 3.38

Within the averages of each year the best performing year is 2002 and the worst year in

inflation rates in 2000 and that also reflects tremendously because of the severe recession

at the time.

Lastly, GDP rates are crucial indicators on how the economy is reflecting in the

United States. As of late December 2004, the U.S. economy appeared to be recovering

somewhat, with 2004 real growth in gross domestic product (GDP) running about 4.4%

(year over year). This follows real GDP growth of 1.9% in 2002 and 3.0% in 2003. This

only reemphasizes that the industry is acting like a seasonal company as its economic

GDP is at year high during the time of December in the holidays.

Industry Analysis

AMZN SWOT Analysis

Strengths • Global Brand • Business is Continually Evolving

Weaknesses

• New Business has added Complexity Opportunities

• Pre-Orders on Products • Multi-Merchant Strategy

Threats

• Competition • Inventory Risk

Strengths Global brand

Amazon.com has a strong brand image, which it continues to leverage, enabling it

to launch multiple product segments such as consumer electronics, toys, and auctions, to

satisfy its expanding customer base of more than 26 million people. The company has

become synonymous with on-line retailing as it continues to develop a strong consumer

oriented service on the Web. It has extended its recognition globally with sites in

Canada, France, Germany, Japan, and the UK.

.Business is continually evolving

Amazon.com has evolved from the leading online book retailer to become the

Internet’s pre-eminent shopping destination across a variety of product categories. Over

the past few years, the company has reinvented itself and stimulated growth by providing

consumers with a wider selection of products, including those from third parties, while

simultaneously driving down prices and improving the overall value proposition for

customers. As a result, Amazon is strategically positioned to continue growing its share

of the retail market and reap the financial benefits on both the top and bottom lines.

Weaknesses New Business has added Complexity

Through the addition of new businesses, Amazon.com’s operations become more

complex. New businesses result in the company’s expansion into new territories as well

as expanding its product fulfillment infrastructure regionally. As business streams

continue to develop, distribution methods become more of a concern and in many cases

distribution partners are required to meet consumers needs adding further costs and

reducing Amazon’s margins further.

Opportunities Pre-orders on Products

Amazon generated free cash flow of $119 million in 2003, up sharply from the $3

million reported in the previous year. The company received customer payments for over

1.4 million units of Harry Potter and the Order of the Phoenix, for which payment to its

vendors were not due until the third quarter of 2003. Obviously this was achieved by

large discounting on the Harry Potter book but similar gains could be made on the

prediction of future ’extraordinary events’ in the retail markets. The gaining of retail

partnerships and the provision of discounts is a lucrative but risky market.

Multi-merchant strategy

Amazon’s new multi-merchant platform (universal wallet) is ready to roll out and

several new stores, such as Apparel Store, which could include major clothing stores, are

expected to open over the next three months. Amazon’s approach of incorporating

several merchants in one store maintains Amazon’s value proposition for the consumer

and enhances its brand without loosing customers to partners’ web sites. With Target,

Circuit City, Toys R US, and now Office Depot as key merchants, Amazon is becoming a

major online shopping mall. During fiscal 2003 the company increased selection by

adding over 40,000 unique gourmet food items, more than 60,000 unique jewelry items,

and over 70,000 unique health and personal care items. Also of interest, the company’s

Amazon Web Services (AWS) introduced two new services in October 2004 that

significantly enhanced the power of software developers and Web site owners to build

new revenue generating applications on Amazon’s technology platform and product data

through the free Amazon eCommerce Service 4.0.

Threats Competition intensifying

The eCommerce market segments in which Amazon competes are relatively new,

rapidly evolving and intensely competitive. In addition, the market segments in which

Amazon participates are competitive and the company has many competitors in different

industries, including the Internet and retail industries. While Amazon currently enjoys a

prominent strategic position and relatively light competition in the online commerce and

retailing field, companies like Wal-Mart and eBay pose a threat to Amazon’s market

share, marketing costs and growth prospects. In particular, as Amazon expands deeper

into third-party offerings and eBay grows its in-season retail business, the two

companies’ business models have come into greater conflict with each other. Wal-Mart

may increase its focus on online retail over time. Wal-Mart has considerable consumer

loyalty and tremendous purchasing power that it is already using to deliver competitive

low prices on some products over the Internet. In the short term, Amazon.com could be

forced to heavily invest in customer acquisition, product development, and category

expansions, as competitors like BarnesandNoble.com, Buy.com, and eBay begin to focus

aggressively on pricing and marketing. Amazon is required to continually develop its

offerings in order to maintain its market shares although this continual development

could be seen as a risk factor because of the costs and the diversification of the Amazon

brand.

Inventory risk

Amazon faces significant inventory risk arising from changes in consumer

demand and product cycles. Amazon is required to have stocks products for sale so

demand can be satisfied within the required time. Obviously stock has to be predicted to

an extent and therefore stored for a period of time another feature of the distribution

business which can significantly increase costs especially if an unexpected trend

occurred.

EBAY SWOT Analysis

Strengths • Business Model • Brand Name • Paypal

Weaknesses

• Advertising Revenues • Technology Development

Opportunities

• Internet Usage • International Expansion

Threats

• Competition • Consumer Confidence

Strengths Business model

Perhaps one of eBay’s biggest strengths is its business model. The company’s

business model means that eBay has no inventory and low capital requirements. eBay’s

business model also helps the company to increase gross margin while keeping customer

acquisition costs fairly low.

Brand Name

The strength of the eBay brand name is increasing. The brand is now becoming

more of a household name, as it benefits from an increase in both brand awareness and

brand recognition. The eBay brand name is also becoming better known internationally

as the company expands its international presence to cover more markets. The increased

equity of the eBay brand name will help the company to generate increased sales and

profits.

Pay Pal

The acquisition of Pay Pal has helped the company to enhance the experience of

customers using eBay. This has had a knock on effect and helped to boost the

satisfaction of customers using eBay. Pay Pal saw its revenues rise by around 90% year-

on-year, while it also experienced an 80% increase in payment volumes.

Weaknesses Advertising revenues

eBay’s advertising revenues have remained flat and currently represents around

2% of the company’s total revenues. Although advertising revenue only represents a

small proportion of revenues, it is an area where eBay should be looking to exploit in

order to generate greater revenues for the company as a whole. Advertising revenues

could become more important for the company, if as forecasted, the market for online

advertising increases over the coming years.

Technology development

eBay still needs to improve a number of areas of its website in order to generate

increased sales in the future. The company needs to examine its user interface in order to

improve its payments and search operations further. If eBay were to do this, it would

benefit from enhanced customer satisfaction, as the users experience of the service would

increase.

Opportunities Internet usage

Internet usage is expected to grow over the forthcoming years. The increase in

Internet usage will present eBay with an opportunity to boost the number of users it has,

as well as its revenues and profits. It is predicted that future Internet usage will be

boosted by factors such as the adoption of broadband technology.

International expansion

eBay has already had some success in its international expansion efforts.

Revenues derived from international activities currently account for around 30% of the

company’s overall revenues. The company could look to further its international

expansion efforts in order to capture a leading share in markets that at present are

untapped but have a high potential to generate revenues in the future.

Threats Competition

eBay encounters competition from a number of organizations in the marketplace.

The company’s competitors include organizations such as Amazon.com, Yahoo!, Google,

MSN, AOL Time Warner and uBid. All of these companies will combine to take away

sales and market share from eBay. Interest and foreign currency exchange rates

Fluctuating interest and foreign currency exchange rates will have a significant impact on

eBay’s earnings.

Consumer confidence

Maintaining consumer confidence in the Internet is vital if eBay is going to

continue its rapid expansion. Negative publicity regarding a possible lack of security with

regards to Internet shopping or fraudulent selling on the Internet will affect the

company’s sales and profits. Increasing consumer confidence should result in an increase

in usage of the Internet and sites such as eBay for eCommerce style activities.

Financial Ratios

Financial ratios are very useful in summarizing the information about company’s

financial strengths and weaknesses. Financial ratios can also be used for future

forecasting to see whether particular company can be successful in the industry. Ratios

can be classified in different types, these include: liquidity, leverage, profitability,

working capital, and growth. All financial ratios for eBay can be found in table one and

for Amazon in table two.

Liquidity Ratios

Liquidity ratios are classified as very important to creditors and managers because they

provide useful information about how particular company meets its short term

obligations. eBay’s current ratio in 2003 was 2.7, above the industry average. It is still

small number; higher current ratio might be a sign that the company may not be able to

pay its bills on time. For Amazon current ratio was 1.6.

Next important liquidity ratio is quick ratio. eBay’s quick ratio is 2.2 that mean that their

inventory accounts for 2.2 of company’s current assets. Large inventories might be a sign

of short term trouble. In case of Amazon inventories count for 1.2 of their assets.

Profitability Ratios

Profitability ratios provide investors and creditors information on the success of the firm

regarding the returns generated on investments and sales. These ratios include gross

margin, return on assets and return on equity.

The best indicator of profitability is return on assets and return on equity. For eBay return

on assets is 9.7 and for Amazon 18.1.

Both companies have high return on assets which is above the industry average ( 3.4 ).

Higher return on assets indicates that companies’ net income is high. This means that

both firms are able to provide their services at lower costs.

For eBay return on equity equals 11.6 and it’s above the average. Amazon’s gross margin

is 24.2 and it’s lower that the average where eBay’s is 87.1 which is very significant.

Leverage Ratios

Leverage ratios measure company’s use of debt to finance operations and assets. Smaller

numbers are better. eBay’s debt-to-income ratios is zero. This is considered strength

because it means that the company isn’t in too much debt. Usually higher ratios indicate

possible difficulties in paying interest and principal balances down while obtaining more

funding.

Another significant ratio that should be mentioned is interest coverage. For Amazon that

ratio equals 4.3 which is below the industry average (7.6). This means that the company

doesn’t have ability to generate enough income to cover interest expenses. On the other

hand eBay’s interest coverage ratio is very high, 127. eBay has great ability to generate

enough of income to cover their interest expenses.

Another ratio that should be mentioned is receivables turnover. For eBay that ratio is 9.8

close to industry average which means that the company gets their bills paid on time and

is able to keep accurate cash level. On the other hand Amazon’s receivables turnover

ratio is way above the average and it’s 41.8. That indicates that the company has

problems with paying their bills on time and is not able to keep their cash in accurate

level.

In addition, eBay’s asset turnover ratio of 0.5 low ratio indicates that the firm is not using

its assets to their capacity and should increase sales or dispose of some of the assets. On

the other hand Amazon’s ratio is higher, it’s 2.6. Higher ratio indicates that the firm is

using its assets effectively in generating sales. Their assets are well used to generate

revenue.

Ebay:

Table: #1 Company Industry S & P Liquidity Current Ratio 2.7 2.2 1.5 Quick Ratio 2.2 1.8 1.1 Leverage Debt/Equity Ratio 0.0 0.17 1.21 Interest Coverage 127.4 7.6 3.4 Activity Inventory Turnover N/A 17.3 8.5 Receivables Turnover 9.8 9.9 7.3 Asset Turmover 0.5 0.6 0.3 Profitability Net Profit Margin 23.8 6.4 7.5 Return on Assets 9.7 3.4 2.4 Return On Equity 11.6 5.6 14.2 Return on Capital 11.6 4.7 6.4 Gross Margin 87.1 53.8 47.4 Net Profit Margin (5 yr avg) 20.6 -48.5 5.8 Return On Assets (5 yr avg) 7.8 -22.6 2.0 Return on Equity (5 yr avg) 9.2 N/A 11.9 Gross Margin (5 yr avg) 87.0 54.3 47.4 Market Value EPS Growth (5yr avg) 118.97 N/A 2.18

Other (Growth %) Sales (5yr avg) 70.68 12.2 4.64 Dividends ( 5 yr avg) N/A N/A 3.39

Amazon:

Table: #2 Company Industry S & P Liquidity Current Ratio 1.6 2.2 1.5 Quick Ratio 1.2 1.8 1.1 Leverage Debt/Equity Ratio N/A 0.2 1.2 Interest Coverage 4.3 7.6 3.4 Activity Inventory Turnover 13.6 17.3 8.5 Receivables Turnover 41.8 9.9 7.3 Asset Turmover 2.6 0.6 0.3 Profitability Net Profit Margin 8.5 6.4 7.5 Return on Assets 18.1 3.4 2.4 Return On Equity N/A 5.6 14.2 Return on Capital 36.1 4.7 6.4 Gross Margin 24.2 53.8 47.4 Net Profit Margin (5 yr avg) -6.8 -48.5 5.8 Return On Assets (5 yr avg) -13.4 -22.6 2.0 Return on Equity (5 yr avg) N/A N/A 11.9 Gross Margin (5 yr avg) 24.9 54.3 47.4 Market Value EPS Growth (5yr avg) N/A N/A 2.2 Other (Growth %) Sales (5yr avg) 30.7 12.2 4.6 Dividends ( 5 yr avg) N/A N/A 3.4

News & Special Issues

Important news and special issues will be concentrated on the past 15 weeks, from

mid-January to the end of April (this semester).

eBAY

eBay started off its year with its announcement of a dramatic fee increase for

eBay storeowners on the U.S. website. Due to this increase, the number of U.S. stores

decreased for the first time in the past 5 quarters. The 2 percent decrease in the number of

U.S. stores is in contrast to the 14 percent increase in the number of non-U.S. Stores. On

January 17th, shares fell nearly 20% after eBay said it would pay more for advertising in

2005 as the costs of placing. Shares of eBay closed up 2.8 percent at $81.22.

In the February month, a lot of events took place. On February 10, 2005, the

financial analyst conference was held in San Jose, California, in which the company

highlighted the strength and provided a strategy of growth for the business 2005 and

beyond. On February 17, 2005, eBay split their stocks. On February 23, 2005, eBay was

sued by a California law firm whose clients allege that eBay illegally forced up prices for

the items. This was also the same day eBay completed its previously announced

acquisition of Rent.com for $415 million plus the cost of acquisition. On February 24,

2005, eBay announced that it had named John Donahoe as President of its eBay Business

Unit. John Donahoe is a 23-year veteran of a privately held consulting firm, Bain & Co.,

and has signed on as president of eBay's Business Unit, a new position that will report

directly to CEO Meg Whitman. The President of the company's North American

operations and international operations will report to Donahoe. In his new post, Donahoe

will serve as mastermind of eBay's global auction and e-commerce.

eBay began its March by launching their Internet Classifieds Site on March

9. People have named this venture a “Global Craigslist”. Craigslist is a classified site set

up in cities across the U.S. where members of the community can meet, chat, trade, buy,

sell goods, and maybe even find love. eBay’s new venture is called Kijiji.com, where

“kijiji” means "village" in Swahili. Kijiji lists items in more than 50 cities, ranging from

Japan to China to Italy and to Germany. On March 16, 2005, the Compensation

Committee of the Board of Directors of eBay approved the compensation to be paid to

eBay's non-employee directors for 2005. On March 18, 2005, the Federal Court ruled that

eBay violated a small company’s E-Commerce Patent. This ruling can radically change

the way eBay does business. A federal appeals court ruled Wednesday that the e-

commerce powerhouse infringed on a patent owned by MercExchange. The U.S. Court of

Appeals for the Federal Circuit said eBay's fixed-price auctions and some of its online

payment methods violated a patent obtained by MercExchange Inc., which sued eBay in

September 2001. A lower court jury in Virginia ruled in May 2003 that eBay infringed on

two MercExchange patents, and a judge ordered the company to pay MercExchange

president Thomas Woolston $29.5 million in lost licensing fees and damages. The

Washington, D.C., appeals court agreed Wednesday that eBay infringed on the patent

involving no-haggle sales but didn’t infringe on the second MercExchange patent. So the

ruling could force eBay to pay $25 million in damages instead. Woolston's attorneys said

they'd ask for an injunction within several weeks that requires eBay to pay Woolston for

use of the patent or stop using online sales techniques that infringe on it. On March 30,

2005, eBay named BBDO as its new marketing agency. BBDO will handle eBay's

Internet and direct marketing, as well as U.S. print and television advertising. BBDO

replaces eBay's prior agency of record, Goodby, Silverstein & Partners, for $250 million.

In April, eBay released their first quarter financials on the 21st. The company

reported record net revenues of $1.032 billion, up 36% year over year; the results

exceeded the estimation of $1.031 billion. Gross profit was $845.4 million, or 82% of net

revenues, higher than the 81% reported in 2004. Registered users increased as PayPal

grew. On April 20, 2005, eBay launches its first East Europe site, in Poland. Poland is

still growing in an emerging economy and eBay hopes to take advantage of that growth.

And finally, on April 27, 2005 (yesterday), eBay announced their quarterly earnings.

AMAZON

Amazon starts off its year in with the introduction of its A9.com Yellow Pages

with images venture. In the month of February, Amazon released their Q4-04 earnings on

the 2nd. Amazon introduced a new specialty service called Amazon Prime. For a yearly

fee, this is the new membership program offers members free 2-day shipping, or

overnight shipping on items for a small fee. Earnings rose sharply with net income

totaling $347 million, or 82 cents per share, up from $73 million, or 17 cents per share, in

the year-ago period. Pro forma earnings were $394 million, or 93 cents per share, up from

$125 million, or 29 cents per share, in the same quarter last year. Also at the final day of

February, Circuit City ended their partnership with Amazon. Circuit City wants to grow

their own website so decided to end the partnership. In February, Amazon purchased

BookSurge LLC, which has a catalog of books that be printed on demand. On the 19th,

Amazon announced that they would be hosting a website for Marks and Spencer clothing

apparel and customer services systems. Amazon.com shares fell 89 cents, or 2.7 percent,

to $32.11 in morning trading on the NASDAQ.

On April 26, 2005, Amazon posted their first quarter earnings. Amazon sales rose

24% from the year-ago quarter to $1.9 billion, in line with analyst estimates. But

continued emphasis on low prices and free shipping hurt their profits. Amazon net profit

fell to 18 cents a share, or $78 million, from 26 cents, or $111 million. The company said

profit included $56 million in income tax expense vs. a $2 million gain in the year-ago

period. The company said income from operations fell 2% to $108 million from $110

million. That includes a $14 million charge from its decision to start expensing stock

options as of Jan. 1. With that $14 million, operating income would have risen 10%. And

the company slightly raised its second-quarter and full-year sales expectations. But

analysts and investors continued to focus on the bottom line. Amazon shares were down

about 5% after hours.

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http://biz.yahoo.com/bw/050223/235913_1.html EBay faces class-action lawsuit. Retrieved April 20, 2005.

http://www.marketwatch.com/news/yhoo/story.asp?source=blq/yhoo&siteid=yhoo&dist=yhoo&guid=%7B493A6049%2D830A%2D4042%2D8666%2DCC47F6D49E26%7D

eBay Hires Auction Czar. Retrieved April 20, 2005.

http://www.thestreet.com/_yahoo/tech/internet/10210474.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA

EBay launches Polish site, first in East Europe. Retrieved April 20. http://yahoo.reuters.com/financeQuoteCompanyNewsArticle.jhtml?duid=mtfh60771_2005-04-22_14-00-30_l22517368_newsml

EBay looks for growth in China. Retrieved April 20, 2005.

http://www.marketwatch.com/news/yhoo/story.asp?source=blq/yhoo&siteid=yhoo&dist=yhoo&guid=%7B39A2508F%2DFCFF%2D487A%2DB6C7%2DDBE82A095FC8%7D

Ebay Looks to China After Profit Soars. Retrieved April 26.

2005. http://biz.yahoo.com/ap/050421/earns_ebay.html?.v=5 eBay Outlines Global Business Strategy at 2005 Analyst Conference. Retrieved April 26.

2005. http://biz.yahoo.com/bw/050210/105754_1.html eBay Releases 2005 First Quarter Financials. Retrieved April 26.

2005. http://auctionbytes.com/cab/abn/y05/m04/i21/s00 Form 8-K for AMAZON COM INC. Retrieved April 26.

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http://www.forbes.com/business/free_forbes/2005/0418/050.html?partner=yahoomag&referrer=

UPDATE 1-Amazon buys private BookSurge. Retrieved April 20, 2005.

http://yahoo.reuters.com/financeQuoteCompanyNewsArticle.jhtml?duid=mtfh19054_2005-04-04_15-26-55_n04451546_newsml

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