Susquehanna Financial Group published an update on Amazon.com, Inc. (NASDAQ:AMZN) and eBay Inc (NASDAQ:EBAY) on Monday, July 14th. In the report, analysts Brian Nowak and Michael Costantini break down the financials, recent performance and prospects of the Internet giants and recommend Amazon as a Buy (Positive rating) with a price target of $450.

Tough year so far for both Amazon and eBay

Amazon and eBay

Nowak and Costantini point out that both companies have had a tough year to date in the overview of the report. “It’s been a tough ’14 for large cap e-commerce as Amazon.com, Inc. (NASDAQ:AMZN) and eBay Inc (NASDAQ:EBAY) have lagged the S&P 500 (INDEXSP:.INX) by 1,960bp and 1,260bp, respectively, making them the 17th and 15th worst performing stocks in the group. But the similarities end there, as we remain bullish on AMZN and expect continued gross profit beats to turn sentiment and drive out-performancce. EBAY faces a multitude of strategic questions.”

Amazon

The Susquehanna analysts argue that gross profit dollar growth (merchandise and Amazon Web Services) the best indicator for the state of Amazon’s business. That said, they expect “expect continued gross profit dollar beats (included 2Q) to turn Amazon sentiment.”

Amazon and eBay

For the second quarter, Nowak and Costantini’s estimate is 2% above consensus on gross profit. They say the strong performance will be “driven by strong merchandise gross profit (expanding 1P gross margins and 3P gross profit per unit) and 33% AWS growth (even through the company’s latest aggressive price cuts) .”

For the third quarter, the Susquehanna analysts are in-line with analysts consensus on revenue and 3% higher than consensus on gross profit. They argue Amazon.com, Inc. (NASDAQ:AMZN)’s beat of second quarter gross profit estimates and strong 3Q revenue guidance “will calm investor concerns that the company’s recent AWS price cuts are materially impacting the growth trajectory of the revenue or gross profit.”

eBay

Amazon and eBay

Nowak and Costantini are less sanguine about eBay Inc (NASDAQ:EBAY) over the short term. They say eBay’s second quarter performance is “riddled with question marks and threats to the company’s near-term performance (Panda, ChannelAdvisor trends, the data breach) and long-term strategy (eBay Now, PayPal leadership).”

Amazon and eBay

The analysts do say they “see the company delivering a buyback-driven 2% 2Q EPS beat”, but also say  “the larger focus will be around how eBay intends to address/fix these question marks and grow the company over the next couple of years.”