Financial Statement Analysis: Project (amazon and ebay) PDF

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In this project, students are required to select two publicly traded companies from within the same industry and extract data in order to assess the financial condition of those companies....

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Introduction In this project, students are required to select two publicly traded companies from within the same industry and extract data in order to assess the financial condition of those companies. Our team chose Amazon and Ebay. Through the use of Yahoo Finance, we were able to effectively gather our data. Amazon Inc Amazon Inc was founded in 1994 by Jeff Bezos. It started as an online marketplace for books but expanded to sell electronics, software, video games, apparel, furniture, food, toys, and jewelry. Its goal is to become an everything store. Its headquarters is in Seattle, Washington. As of 2015, Amazon is the most valuable retailer in the United States. Ebay Inc Ebay Inc was founded in 1995 by Pierre Omidyar. It is an online auction and shopping website in which people and businesses buy and sell a variety of goods and services worldwide. The website is free to use for buyers, but sellers are charged fees for listing items after a limited number of listings, and again when items are sold. Its headquarters is in San Jose, California. Below is an overview of key financial ratios for each company based on data from 2020. Amazon

Ebay

0.86

1.80

Return on Assets

7.81%

30.24%

Return on Common Stockholders Equity

27.44%

176.2%

Earnings Per Share

$41.83

$7.89

Gross Profit Margin Ratio

24.41%

75.92%

Time Interest Earned

31.01

12.96

Inventory Turnover

13.18

N/A

27.7 Days

N/A

Debt to Long Term Equity Ratio

0.341

2.172

Debt to Equity Ratio

2.439

4.423

Sales to End of Year Working Capital

$60.82

$3.22

Acid Test Ratio

Days in Inventory

*Ebay has no inventory and so there is no calculation for Inventory Turnover or Days in Inventory.

Financial Issues or Improvements Amazon Amazon improved to a mass in the year 2020 when compared to prior years making the company’s worth more than $1.7 Trillion (as of 2020) and the second most valuable company in the United States. Although, its stock performance in 2019 was lower than anticipated, missing profit expectations in the third and fourth quarters; sparkling growth concerns. The company’s stocks skyrocketed in 2020 as its revenue increased 43.8% $103 billion, it’s net income shot up 219.8% to $8.107 billion, exceeding the company’s previous record of $7.222 billion set in the fourth quarter of 2020 exceeding Q4 expectation by 13.6% in the domestic market. Amazon’s international sales also increased by about 60%. This was partly because of the pandemic,but the growth may halt once people start shopping at brick and mortar stores again. Regardless, the company maintains a store presence in the ecommerce. Amazon Web Services (AWS) which is a cloud computing web service that provides a variety of basic abstract technical infrastructure and distributed computing building blocks and tools to individuals, companies, and governments saw a 28% increase in revenue in 2020. AWS enjoys a majority of market share of 32% in the cloud infrastructure services. Additionally, the company is exhibiting promising performance in 2021 and its goal to capture about 50% of the ecommerce market share will be interesting to see. Ebay The gross value of goods sold on eBay grew 22.1% when compared to 2019 in the United States. The company’s gross merchandise volume also grew by about 16% (including international markets) in 2020. Even though Ebay's earnings in 2020 show an increase of 25%, its growth pace is nowhere near its competitors (Amazon, Walmart) in the United States, this is partly due to the nature of the company; Ebay is a niche marketplace and it does not provide many mainstream services such as groceries, same day delivery, etc; given its competitors an edge. Although, in 2019 the company implemented a renewed focus and initiatives like its authentication program have worked in the companies favor. This change in strategy allowed Ebay to enter a new market and gain traction. Comparatively, Ebay is among the highest in its field which is about 25% over sales, beating its competitors in operating margin by a lot. In 2020, its sales grew by 20% as well because of the change in shopping trends due to the pandemic. Ebay plans to sustain its growth and profits by entering new niche markets such as refurbished and collectibles, as well as a new payments processing method. Recommendations Amazon and eBay take the top place for the largest online marketplaces in the USA. However, the question still stands, how is Amazon dominating the market? Amazon has been improving drastically over the years while eBay pretty much stayed the same. Let’s do the analysis and see

what eBay can improve on. “Amazon’s global gross merchandise volume (GMV) is estimated at $335 billion and 70% of sales originate in North America, according to its 2019 annual report, making an estimated US GMV of $235 billion.” The first thing that Amazon has the advantage of is the inventory. If someone wants to become an Amazon seller, you must ship your product to one of the Amazon fulfillment warehouses. If we look at the table above, Amazon has an inventory Turnover of 13.18 and Days in inventory 27.7 days while eBay has none. Carrying inventory is one of the strengths of Amazon which allowed the company to grow so quickly. Since the company controls the majority of the inventory, Amazon can ship the products so quickly. If you have Amazon prime membership there is a 2-day guaranteed delivery free of charge, in some products you will even get it within a day. eBay on the other hand does not have an inventory at all. Sellers on the platform are required to carry their own inventory which means that the shipping and delivery varies. When you order something on eBay it usually takes about a week to receive your order. It doesn’t seem that long but Companies like Amazon, Walmart, Target have 2day free shipping available for all their products. They’re able to do that because they carry an inventory. If eBay takes control of the inventory, there will be more traffic in the platform which will increase the revenue. If we look at the table again, Amazon has Sales to End of Year Working Capital Ratio of $60.82 and eBay has $3.22. eBay can increase. One of the factors of sales to working capital ratio is inventory. Since again, eBay has a significantly low value which is $3.22 because it does not carry any product inventory. Furthermore, Amazon Prime membership is one of the greatest assets that the company has. According to Statista, “Amazon’s Prime membership program has been highly successful in the US, with 51% of households subscribing to the service. Prime members spend an average of $1,400 per year on Amazon, versus $600 per year for non-Prime members.” With the subscription, members can benefit from guaranteed 2-day shipping on prime products, prime video, music, Kindle, and many more benefits. Over the years, eBay has not made any major investments to increase its revenue, but Amazon, on the other hand, has been dominating in innovation. eBay can replicate what Amazon is doing and offer subscriptions with unique features that only members can access. This will create a long time relationship with a customer. There are still many people who prefer eBay over Amazon, with that said, the company does not lose its loyal customers Amazon. The company also owns Ring, Whole Foods, audible, Amazon Go, Fresh, and many more. Recently, Amazon started to allow people to deliver Amazon packages. In addition, it created a program where you are able to become a business owner by owning an Amazon delivery service and delivering packages in a specific area. Amazon is trying to cut down the middle man to increase its profits as much as possible. eBay needs to catch up and come up with innovative ideas to make the customer experience better, or else it will lose its second place to Walmart on the top online marketplaces Opinions After thorough research between the companies it was shocking to see the immense growth that ecommerce received throughout the pandemic. Ebay and Amazon are two similar companies with many different strategies and different target markets. Even though both companies are already top in their respected fields, they both still have tremendous potential coming in the future.

The two companies have already gained major success, however, they can still make improvements to further their accomplishments. After completing our research on the data presented Ebay should consider getting a hold on the inventory that way they can manage the shipping on items which would provide more traffic through the website since in today’s society convenience and accessibility are major factors on where people tend to shop. By gaining control of the inventory they will also be able to increase their End of Year Working Capital Ratio. Ebay can work on creating a subscription program as well such as Amazon Prime. There are a lot of opportunities that can be created through the subscription program as we’ve seen with Amazon and will generate a more long term relationship with their customers. Amazon without a doubt leads the way in the ecommerce marketplace however Ebay has the capability to step up and compete even closer to Amazon if they make a few changes to create more opportunities for their customers....