Microsoft (MSFT) rises Thursday evening on Q4 earnings beat >>> READ MORE

3 Smartest Ways to Own Retail Stocks

These three subsectors are the best retail plays in 2014

      View All  

Internet Retail

retail-stocks-EBAYThis is a two-horse race between Amazon (AMZN) and eBay (EBAY). That’s no easy choice as they’re both excellent companies.

Both sell online goods, include through third-party sellers, and are huge companies — $85 billion in combined revenue and $245 billion in combined market cap. But that’s where they diverge.

Venture capital investor Chris Dixon wrote a good piece on his blog (recommended reading) in 2012 that compares the two companies and how their e-commerce business models are different.

One of the biggest differences between the two companies is profitability. Amazon’s Jeff Bezos doesn’t consider short-term profits when making business decisions, focusing on the big picture instead. If you watched 60 Minutes recently, you saw him explaining how it is currently in the process of figuring out how to ship products that weigh less than five pounds with automated drones. Bezos is obsessed with logistics because he knows these things factor into the customer experience. Through large volumes and market share penetration, Amazon will win the e-commerce battle, if it already hasn’t.

EBAY, on the other hand, expect to generate $4 billion in free cash flow in 2014. Amazon will be lucky to generate any. Yet EBAY stock has barely budged in 2013, up 3% year-to-date through December 17 compared to 55% for AMZN. Investors don’t seem nearly as fascinated by its growth story, but they should be.

Over the next two years, I think there’s money to be made investing in eBay because its stock is cheap relative to its peers. Long-term, however, I think you should have both in your portfolio.

Article printed from InvestorPlace Media,

©2017 InvestorPlace Media, LLC