Smartmoney.com
Will This Bubble Ever Burst?
LIKE A school kid with a pack of Bazooka gum, the Internet sector continues to flaunt its bubbles.
Tuesday after the close, bellwethers eBay (EBAY) and Amazon.com (AMZN) kept the gum off their faces, announcing earnings ahead of analysts' expectations.
And despite a growing list of long-term concerns and a month of harrowing stock dips, individual Internet issues are showing remarkable resiliency and a stubborn inclination for staggering single-session gains. To wit: On Monday, amid reports of online fraud investigations, eBay soared 20 points, or 10.5%; Yahoo! (YHOO), having fallen 36% in a little more than a week earlier this month, has soared more than 27% over the last three trading days; and Amazon, for which profitability exists only in theory, refuses to dip below $100 and has climbed 13% since Thursday.
Investors can't seem to get the taste of trading profits out of their mouths. But as earnings season heats up and financial statements return to the fore, some tangible concerns are posing a serious bubble-bursting threat.
Ebay earned seven cents per share for the quarter, excluding a one-time charge, topping forecasts by three pennies. Revenue for the period grew 642% over last year to $19.5 million as the company hosted 13.6 million auctions during the quarter, a 48% jump from last quarter. Profit margins declined two percentage points but remained in the stratosphere at 85%. The company also announced a 3-for-1 stock split. EBAY rose 1.6% on Tuesday in anticipation of the news.
Meanwhile, Amazon reported a loss of 14 cents per share, four cents better than analysts had been expecting. Thanks to strong holiday sales, revenue soared 283% to $252.9 million. Investors boosted AMZN shares 2.4% on Tuesday.
Earlier this month, Amazon told investors that fourth-quarter sales registered approximately $250 million, well ahead of analysts' estimates and almost four times year-ago results. Still, the online retailer continues to bleed red ink and warned that pricing pressures, promotional discounts and higher costs for fulfilling orders would keep margins under water.
Amazon investors have expressed some uncertainty of late as to whether they should continue to pay up for a profitless concern. Influential analyst Henry Blodget of CIBC Oppenheimer added fuel to the fire last week when he said that "at cost" Internet sales models, such as the one recently unveiled by Onsale (ONSL), could further erode margins of the established players. Blodget caused a stir late last year when he set a presplit $400 price target on AMZN shares. The stock later soared past that figure only to pull back. With the revised revenue figures already baked into the stock, investors will likely keep close watch on Amazon's newly relevant margins.
For eBay, profitability has never been a concern. The online auctioneer sports exceptional margins thanks to its inventory-free business model.
But on Monday, news broke that the New York City Department of Consumer Affairs was investigating charges of fraud on eBay's online auction site. There was no short-term trouble for investors -- the stock continued to soar on the strength of a marketing pact with Compaq Computer (CPQ) -- but analysts posited that the long-term ramifications could be vast should the company be held responsible for the actions of its members. Speculation of fraudulent items for sale could also stunt the growth of eBay's expanding online community. And should consumers begin to lose confidence in the safety of Internet commerce, the ripples could be felt across the industry.
Meanwhile, on Wednesday America Online (AOL) should further separate itself as the cream of the Internet earnings crop. The company is expected to report fourth-quarter earnings of 14 cents per share. That's a 180% rise over 1997.
Still, as the company's membership base climbs toward 20 million, AOL is bracing for stiffer competition from the likes of newly formed entities, such as the one created by At Home (ATHM) and Excite (XCIT). AOL's stock price has declined more than 5% this month.
Among the other Internet earnings highlights for the week: Broadvision (BVSN) reports on Wednesday. Geocities (GCTY), Infoseek (SEEK) and SportsLine USA (SPLN) report on Thursday. |
