Beginning to look a lot like e-Christmas
With record high temperatures roasting the country's midsection and parched, dead lawns in New Jersey, it's a little difficult to think of the winter holiday season right now. But just before they collectively took off for their summer vacations, the Wall Street analysts cranked up the holiday hype machine a little early.
Industry pundits are already buzzing about the "Blodget factor" -- the debate started on Wednesday by Internet analyst Henry Blodget of Merrill Lynch (NYSE: MER) when he issued a "holiday basket" of stock picks of e-commerce players that would benefit from the fourth quarter uptick in retail sales. Many of Mr. Blodget's picks fared well on the heels of his report on Wednesday but then fell back in a market decline on Thursday.
But beyond Mr. Blodget's report, the buzz is already circulating that it's going to be another e-Christmas.
My excitement and my model don't match," says Mitch Bartlett, Dain Rauscher's e-tailing analyst. Even though Mr. Bartlett has used a valuation model that gives him a price target of $125 for Amazon.com (Nasdaq: AMZN), his gut instinct tells him the firm's stock could surge above that figure through the period running up to Christmas.
"Mr. Bartlett's enthusiasm stems from the rate at which Amazon.com is acquiring customers.
"If they add the same number of customers this quarter as they have done before, they could end up with 17 million customers, and most models don't assume this rate of growth," he says. Amazon.com currently has just over 10 million customers.
The analyst recently upgraded the stock to an Aggressive Buy. In line with the industry consensus figure gathered by the earnings information and stock research site IBES, Mr. Bartlett projects that Amazon.com's revenues could reach $450 million to $460 million for the fourth quarter this year, compared with fourth quarter revenues of $253 million last year. Mr. Bartlett believes that Amazon.com, like other online retailers, will benefit from holiday shoppers, more of whom have access to the Internet through cheap or free PCs. He also believes that Amazon.com's gamble to expand to a general retail store -- adding consumer electronics and toys -- will meet with success.
SEIZE THE SEASON
Of course, Amazon.com has been betting on this all along. That's what's made the pace of expansion a priority. In just a few months it has added substantial sections of its site -- including auctions, electronics, and toys and games -- specifically to prepare for this year's holiday shopping season.
Mr. Bartlett's enthusiasm mirrors those of his peers. Earlier this week, Mr. Blodget sent e-tailing shares upward when he included Amazon.com, America Online (NYSE: AOL), Yahoo (Nasdaq: YHOO), Barnes & Noble (NYSE: BKS), eToys (Nasdaq: ETYS), Lycos (Nasdaq: LCOS), and Excite@Home (Nasdaq: ATHM) among his "holiday basket" list. Mr. Blodget predicted that these stocks could trade 50 percent to 100 percent higher than their current levels by the end of the year and that consumers will double or triple the rate at which they buy goods online this holiday season.
Likewise, analyst James Preissler of PaineWebber (Nasdaq: PWJ), notes that AOL will also benefit in the fourth quarter, as subscriber growth kicks in with holiday PC purchases. He also notes that online usage rates go up as the weather gets cooler.
When asked about the seasonal influence on Internet e-tailing stocks, Mr. Preissler says it's as much a psychological factor with individual investors as it is a matter of valuations. "I wasn't willing to pull the trigger like [Mr. Blodget] was, but there's a big herd of retail investors, and you want to get in front of them," he says. "One of the things that happens is, as they shop at these places, they think about buying the stocks of the companies where they're shopping."
E-MALLS GETTING CROWDED
Of course, many of the Wall Street analysts' forecasts are based on numbers they receive from industry analyst firms. Preliminary forecasts would support the theory that explosive growth in e-tailing will continue this season.
On a preliminary basis, Forrester Research (Nasdaq: FORR) projects that e-tailing firms will reel in revenues of $10 billion in the fourth quarter this year -- up from $3.5 billion for the same period last year. Among other factors, Forrester expects more shoppers this year simply because AOL has added so many more subscribers, and that's where many online shoppers come from. Another factor is online shopping services, says Forrester research associate Carrie Ardito. She points to 911Gifts.com and WishClick as examples of services that make can online shopping easier for consumers.
Thomas Miller, a vice president at market research firm Cyber Dialogue thinks forecasts such as Mr. Blodget's are "well within possibility" because of the way the online audience has grown and evolved. He says that for this Christmas, whole families will be shopping online as opposed to the Internet's original majority audience of male technogeeks. Online shopping is also being propelled by more personalization on the sites as well as more marketing, he says. Cyber Dialogue's figures also reflect an increased number of shoppers online. For the first half of 1999, 24.4 million people purchased goods online, compared with 17.7 million for the first half of 1998.
Rakesh Sood, an e-commerce analyst at Goldman Sachs (NYSE: GS), says that unless the U.S. economy takes a nosedive, he expects, like Mr. Blodget, fourth quarter retail sales to triple this year over last year's sales. People are more used to shopping online, he says, and there are more options online now as well.
SERVICE IS KEY
Although securities analysts are generally enthusiastic about online retailing stocks, they say that their picks are stocks of online firms that they believe will be prepared for the holiday onrush -- a crucial factor since bad online service can be such a big turnoff. Like most other analysts, Lauren Cooks Levitan, BancBoston Robertson Stephens's e-tailing analyst, thinks the winners for the fourth quarter will be Amazon.com, Priceline.com (Nasdaq: PCLN), eToys, eBay (Nasdaq: EBAY), and Alloy Online. But since Internet stocks are so volatile, BancBoston Robertson Stephens doesn't set price targets, she says.
Despite all these enthusiastic sentiments, the analysts' earnings per share losses for Amazon.com continue to widen. They expect the bookseller to lose 54 cents a share for the fourth quarter this year; for the overall year they expect the firm to lose $1.86 a share, after starting out expecting the company to lose 57 cents a share for 1999, according to First Call.
Still, these kinds of numbers don't seem to put people off, notes First Call/Thomson Financial's director of research Chuck Hill.
"That's what it takes for you to push your stock price up -- ever-widening losses," he jokes.
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