Strong eBay results bode well for Amazon

EBay Inc's strong first quarter bodes then for Amazon.com Inc's results straightway week - especially Amazon's own online Marketplace business and e-commerce in general, analysts said on Thursday.

EBay shares surged to a six-year high afterwards quarterly results showed the company's efforts to turn around its online Marketplaces business are paying off.

Amazon is scheduled to report first-quarter results on April 26. Wall Street expects the world's largest Internet retailer to report revenues of 7 cents per share on revenue of $12.86 billion, according to Thomson Reuters I/B/E/S.

Following eBay's results, Amazon's first-quarter revenue may match or beat Wall Street's forecast, said Gene Munster, an analyst at Piper Jaffray. He was expecting Amazon revenue to be $12.6 billion earlier eBay reported.

The dominant Internet retailer

As the dominant Internet retailer, Amazon takes on inventory and sells millions of products online. However the company has as well run its own Marketplace business for several years, allowing third-party merchants to sell to its clients through the platform, like eBay.

Known as 3P, Amazon's Marketplace has been growing faster than its main retail business. While the fourth quarter, 3P's growth took some on Wall Street by surprise and its emergence as a major Amazon business is changing the way analysts and investors think about the company.

Instead of a retailer, Amazon is an operator of online platforms that allow other businesses and entrepreneurs to make money, according to Carlos Kirjner, an analyst at Bernstein Technology.

Recent three-page letter to shareholders

In a recent three-page letter to shareholders, Chief Executive Jeff Bezos did not mention Amazon's main retail business.

"Bezos' letter provides food for thought for those on the Street who however think about Amazon as a retail business," Bernstein's Kirjner wrote in a Tuesday note to investors.

Product sales are broadly speaking Amazon's retail business, during Services include the company's Marketplace and other newer businesses just as the cloud computing unit Amazon Web Services, or AWS.

3P accounted for less than 10 percent of Amazon's fourth-quarter revenue. Nevertheless the business grew about 80 percent in the period, during Amazon's main retail business grew about 30 percent, Kirjner estimated.

Online marketplaces and other platforms can be more profitable than traditional retail businesses, in some cases because marketplaces do not have to pay to buy products and store them as inventory, said Aaron Kessler, an analyst at Raymond James.

Amazon likely gets about 15 percent of the revenue generated from third-party sales on its Marketplace, during it gets all of the money from its own retail sales, Kessler noted.

So as Amazon's Marketplace grows, the company's overall revenue growth may slow, however profit margins should increase, Kessler and others said.

That is because most of the revenue Amazon generates from third-party sales on its Marketplace falls straight to its bottom line as profit. Schachter reckons Marketplace gross profit margins are close to 100 percent, a lot higher than margins on Amazon's retail sales.