Will eBay (NASDAQ:EBAY) Survive Alibaba (NYSE:BABA)?

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By Thomas Copeland on September 26, 2014 Street Watch

With its accomplishment in IPO, Alibaba (NYSE:BABA) is giving serious competition to eBay (NASDAQ:EBAY). Evidence shows that Alibaba (NYSE:BABA) is more than ready to take on eBay (NASDAQ:EBAY) on its own. It’s not just the monetary advantage Alibaba (NYSE:BABA) has over eBay (NASDAQ:EBAY), the company is also pulling in more customers due to reasonable pricing and transaction fees. The recent security breach has left a mark on eBay (NASDAQ:EBAY)’s reputation, forcing merchants and buyers to a more secure Alibaba (NYSE:BABA).

Certain factors that led to eBay (NASDAQ:EBAY)’s situation are;

- Alibaba (NYSE:BABA)’s financial power

A steady and firm growth of revenues along with increasing EBITDA margin (earnings before interest, taxes, depreciation and amortization) has made Alibaba (NYSE:BABA) strong in financial capacity.

Its revenues have shot up from $1.57 billion in 2010 to $8 billion in 2013 alone, due to its expansion in China. Not only has the number of buyers increased but the amount these buyers are willing to spend has also gone up dramatically. The EBITDA margins have also gone up from a low of 16.7% to a massive 58.8%. Another $8 billion was incurred after the IPO in the US. This capital might be kept for expansion purposes in business worldwide. The targeted markets include US, Russia and Brazil. Ever since the IPO, Alibaba (NYSE:BABA) has made its mark in the US, and it won’t be long when its growth vibration starts effecting eBay (NASDAQ:EBAY).

- Alibaba (NYSE:BABA)’s Pricing Strategy

The fact that all items available at Alibaba (NYSE:BABA) are set at the Chinese standard pricing comes as an advantage to the foreign buyers, hence an encouraging increase in the number of overseas buyers. These buyers are mostly from Russia, Brazil and the United States. This has been a major indicator of demand for Chinese products in these regions, which will eventually result in Alibaba (NYSE:BABA) focusing its market expansion into these countries. As United States is one of the biggest markets for eBay (NASDAQ:EBAY), the new entrant is expected to give the company a severe competition.

Another competitive advantage Alibaba (NYSE:BABA) has is its AliExpress. It’s used by Chinese wholesalers and manufacturers for business purposes and 5% of its revenues go to Alibaba (NYSE:BABA). eBay (NASDAQ:EBAY) has similar facilities but at much higher rates and hence, it is less attractive for customers.

- Security Breach versus Customer Trust

A security breach in the system could bring down any company’s reputation and business. Same has been the case with eBay (NASDAQ:EBAY). With recent incidents and security issues, the company’s revenues came down dramatically and consumers have started taking their business elsewhere. Furthermore, eBay (NASDAQ:EBAY)’s requests to change customer account password has created a feeling of insecurity amongst customers and some have abandoned the platform altogether. BBC’s latest revelation that eBay (NASDAQ:EBAY) is aware of loophole in its security system, is likely to draw customers away who will be looking at better alternatives for online shopping such as Amazon (NASDAQ:AMZN) or AliExpress.

Considering all the above factors eBay (NASDAQ:EBAY) will be keeping a close on Alibaba (NYSE:BABA)’s progress in the coming months.