Ebay-Gsic
- Submitted by: sisit
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- Date Submitted: 10/03/2013 10:26 PM
- Pages: 6
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* Question 2
According to the financial report of GSI Commerce Inc. in Fiscal 2011, before the completion of acquisition by eBay, the revenue for the first quarter has rose 18.7% to $323.5 million ended April 2, which is up from $272.6 million in the year-earlier period (Paul, 2011). Also for the year ended 2010, GSI Commerce quickly developed and showed a 35% increase in revenue comparing to the previous year. It is a promising company and the services provided by GSI Commerce have become popular, especially when large brands want to get rid of online single independent platform. Therefore, revenue is never a problem for GSI commerce.
However, net profit showed totally different pictures. The figure below shows the profit and loss for GSI Commerce over 5 years from 2005 to 2010.
(Eburn, 2013)
It can be found out that the expenses in 2005 and 2007 were just offset by its income and the income positions were negative from 2008 to 2010. The main reason for its increasing revenue but decreasing profit is that the cost for GSI’s services are extremely high, resulting a low gross profit margin. Although the GSI has pushed down its operating expenses as little as possible, it has still posted losses in all but two of its fiscal years since 2001 (WSJ, 2011). Also for a company neck-deep in the retail business, it is not surprising that roughly 40% of GSI’s annual net profit is generated in the last three months of the year because of the seasonal sales in Christmas and GSI has said it has not been profitable in any of its quarters other than the fourth quarters.
Another reason that makes GSI so vulnerable is that GSI heavily rely on borrowing from financial market to maintain the normal operations. Rapid growth accelerate the needs for capital, but the long-term deficits, increasing long-term bank borrowing and limited funds available for working capital were prompting investors to increase their risk expectations for GSI. Therefore, it becomes harder for GSI to...
According to the financial report of GSI Commerce Inc. in Fiscal 2011, before the completion of acquisition by eBay, the revenue for the first quarter has rose 18.7% to $323.5 million ended April 2, which is up from $272.6 million in the year-earlier period (Paul, 2011). Also for the year ended 2010, GSI Commerce quickly developed and showed a 35% increase in revenue comparing to the previous year. It is a promising company and the services provided by GSI Commerce have become popular, especially when large brands want to get rid of online single independent platform. Therefore, revenue is never a problem for GSI commerce.
However, net profit showed totally different pictures. The figure below shows the profit and loss for GSI Commerce over 5 years from 2005 to 2010.
(Eburn, 2013)
It can be found out that the expenses in 2005 and 2007 were just offset by its income and the income positions were negative from 2008 to 2010. The main reason for its increasing revenue but decreasing profit is that the cost for GSI’s services are extremely high, resulting a low gross profit margin. Although the GSI has pushed down its operating expenses as little as possible, it has still posted losses in all but two of its fiscal years since 2001 (WSJ, 2011). Also for a company neck-deep in the retail business, it is not surprising that roughly 40% of GSI’s annual net profit is generated in the last three months of the year because of the seasonal sales in Christmas and GSI has said it has not been profitable in any of its quarters other than the fourth quarters.
Another reason that makes GSI so vulnerable is that GSI heavily rely on borrowing from financial market to maintain the normal operations. Rapid growth accelerate the needs for capital, but the long-term deficits, increasing long-term bank borrowing and limited funds available for working capital were prompting investors to increase their risk expectations for GSI. Therefore, it becomes harder for GSI to...