The year of 2014 was filled with ups and downs for the three masters of the e-commerce marketplace. Amazon hit it big in sales but fell short in the phone and profit departments, eBay and PayPal announced they'd be splitting (along with eBay's CEO), and Alibaba set a record-breaking IPO but hit a few bumps in the road late in the year with one of its sites and a growing chorus of analysts who don’t believe they can continue to deliver double digit growth in revenue and margin.
So, it seems that headed into 2015, these e-commerce giants have a lot to prove to investors about their vision for delivering growth and long-term profits. But before we close the books on 2014, here's a brief look at the year that may prove to be a turning point for each of them.
The third-quarter of 2014 was rough for Amazon. CFO Tom Szkutak was asked by analysts how it was that Amazon could take in $20 billion in revenue but still lose money. That loss, $544 million, was more than 20 times its 2013 third-quarter earnings and just about equal to its $570 million revenue project for next quarter.
First quarter 2014 posted a positive profit, but it seems to have been all downhill from there, and Q4 isn’t expected to knock the socks off the analysts either. All signs point to Amazon being in the red again, even when taking into account the potential record-breaking holiday sales this season. Still, Bezos has stuck to his vision when speaking about the company's investment strategy: Creating long-term measures for success through major investments. Amazon's focus on long-term investments discussed in 2014 included expanding its global enterprise market, investing in new products, new spaces and staying competitive in the e-commerce pricing market.
Some of those new initiatives included investing in bricks to go with its clicks, opening a massive operation in midtown Manhattan, and doubling down on same-day-delivery options and new fulfillment centers around the country. Amazon has also launched other initiatives like Amazon Local to offer consumers individual deals by region, Pay With Amazon — offering new methods to pay online or on mobile. Amazon also gave Square some competition with the release of its own mPOS package, Amazon Local Register. There was also talk of Amazon investing in small drones to deliver packages — though that won't be for years (or ever if the FAA has its say). Amazon wrapped up its year by announcing it had gained more than 10 million new Prime members during the holiday season, but what will really matter is how many of those stick after the free month trial ends.
Among its disappointments was its lackluster release of the Amazon Fire Phone. Billed as a smart alternative to the existing smartphone lineup, it left potential buyers cold. As of a few months ago, there were still phones worth $83 million left in inventory as a big ticket price, a lack of apps, and therefore a compelling reason to buy, has Amazon back to the drawing boards.
So how can the year be summed up?
“I would define Amazon by our big ideas, which are customer centricity: putting the customer at the center of everything we do. Invention: We like to pioneer, we life to explore, we like to go down dark alleys and see what’s on the other side,” Bezos said in a interview with 60 minutes.
The question is: Will investors remain patient as Amazon continues to explore those dark alleys? The year ahead should reveal what's on the other side of Amazon's investment strategy, including new products and expansion plans, and the chance for the e-commerce giant to prove itself and its vision.
EBay had a big year. The company posted steady, but strong revenue growth of roughly 12-14 percent (around $4.4 billion in revenue) each quarter; commerce revenue growth was also strong, ranging between 24-27 percent during the first three quarters. It was also the year of soon-to-be-splits for eBay as the announcement of the eBay/PayPal split also brought with it the announcement that a new CEO would replace John Donahoe (he'll be leaving with a$23 million exit package). And, not long after Donahoe announced he would quit the eBay board when the companies split and move solely to the PayPal board, eBay also announced it was preparing for at least 3,000 layoffs.
With all eyes on the eBay/PayPal split, it may be easy to forget one of eBay's toughest hurdles of the year: the cyber security breach that caused password reset glitches. Cyber criminals reportedly used employee credentials to access a customer database, where they could get at customer names, dates of birth, email addresses, phone numbers and encrypted passwords — but not payment card, financial information and Social Security numbers, according to eBay. This incident was followed by a a class action suit in a U.S. federal court and a bipartisan probe by the U.S. House representatives of the breach.
Like Amazon, eBay has used the year to prepare for a long-term vision for eBay in a post-PayPal world. Donohoe heads into 2015 as his 10th (but last) year leading the company and said he’s eager to pave the way for new leadership.
“We look forward about how to best position the company over the next three to five years. And really, four things that changed came out of that. One is that as we look forward we see that payments and commerce landscape, competitive landscape, changing at an accelerating rate, which creates enormous opportunity for eBay and PayPal,” Donahoe told CNBC.
2014 was also the year of design innovation for eBay as it released yet another new site interface and a new iPad app that were both aimed at making the consumer experience more seamless by offering more recommendations and saving searches. Just in early December, eBay rolled out a new product category called Innovators Collective on its U.S. marketplace to offer collection lifestyle products. EBay made it clear in 2014 it wants to stay relevant in the e-commerce market.
And that's what defined 2014 for eBay: Transition, challenge, competition and potential opportunity. For better or for worse, 2015 will bring about a newly defined eBay. EBay was in the spotlight this year, and at least one analyst believes that it may just be the company to watch in 2015.
"EBay is close to the mature stage,” reported Seeking Alpha. “After the PayPal spin-off wraps up, we'll be left with a well capitalized company. A company with a healthy operating margin (40 percent for Marketplace in FY13), a strong cash balance, and no real competitors (until, BABA becomes a threat domestically), eBay's best and most likely option is to become a shareholder friendly blue-chip: paying out dividends and buying back stock," the report concluded.
Jack Ma’s dream came true this year: Alibaba posted its record-setting $25 billion IPO, giving Alibaba and Ma a massive war chest to expand the Alibaba franchise in and outside of China and making it larger than eBay and Amazon combined. And, that was just the warm-up act: since its September IPO, the company fueled a 54 percent stock surge in a three-month span. Following its successful IPO, Alibaba turned to where it could invest some of its newfound money. The first post-IPO investment for Alibaba? Putting $457 million into a hotel tech firm.
That significant event aside, 2014 was one in which Alibaba gained traction across its three main sites — Taobao, Tmall and Alibaba.com. Discussions between Alibaba and Apple and Alibaba and PayPal also took place during the final quarter of the year, fueling all kinds of speculation as to what any future partnerships might look like. As for Alibaba’s “official position” on the matter? Ma has indicated there's interest in partnering with both payment options to offer consumers an alternative payment when its own Alipay isn't available - a payment method that is also owned by Jack Ma and which boasts some 300 million mobile registered users alone.
Alibaba’s other huge milestone was the success of its own retail holiday, Singles' Day, which happens every Nov. 11. With sales hitting more than $2 billion in the first hour alone, when the day was done, the total tally was $9.3 billion, up significantly from the $6 billion it scored in 2013. And, all of this together turned Jack Ma from China's richest man to one of Asia's richest men over the course of the year.
The mainstream press for Alibaba, at least for the most part, was positive, including praise from CNN Money that suggested "Alibaba's growth can't be stopped," and that "Alibaba's quest for global e-commerce domination is right on track."
Clearly a goal that is consistent with Ma’s vision.
“E-commerce in the U.S. is a dessert and in China it’s become a main course. Logistically, we’re seeing 29 million packages every day. But what we’ll see in 10 years is 200 million packages every day.” Ma told CNBC. “Our mission is helping others do business easier. …China changed because of us and we hope that in the next 15 years, the world changes because of us.”
Alibaba’s current strategy involves extending it global presence, but its struggles with Tmall could get in the way. Tmall was launched in 2014 as a way for brands outside of China to be made available inside of China to Chinese consumers. The Wall Street Journal reported recently that Tmall may be the "black eye" for the e-commerce company since merchants are already saying they're considering bailing on the marketplace given a lack of sales given the Chinese consumers’ lack of trust in the authenticity of the products being sold and the cost to them of making the purchases.
So what did 2014 bring Alibaba? Clearly a buildup to an impressive IPO that caught the attention of analysts and investors worldwide. And, it certainly shook up the e-commerce marketplace and intensified competition in the global e-commerce space. It made its mark this year. However, 2015 will be worth watching as the world, itself, watches and waits to see how they put their IPO proceeds to work, and how well – and quickly – it expands its franchise outside of China.