November 27, 1998
'Black Friday' for Retailers
Brings Joy to Net Investors
By LISA BRANSTEN
THE WALL STREET JOURNAL INTERACTIVE EDITION
SAN FRANCISCO -- Friday marks the traditional start of the holiday
shopping season, but it appears that Christmas, Hanukkah and Kwanzaa have
all come early for investors in Internet retailers' stocks.
Online bookseller Amazon.com is up more than 71% so far this month -- and
that's meager when stacked up against shares of computer-products sellers
Cyberian Outpost and Egghead.com and online auctioneer Onsale during that
period.
Friday brought strong more gains, led by the seemingly helium-fueled
Books-A-Million, which followed Wednesday's 196% leap with a gain of
193%, or 24 15/16, to 38 15/16. The stock market was closed for a holiday on
Thursday.
Merger partners CDNow and N2K continued to show strength, as CDNow
climbed 9 7/8, or 58%, to 26 7/8 and N2K shot up 6 11/16, or 50%, to 20
1/16. Onsale rose 37 5/8, or 63%, to 97 5/8; Egghead.com rose 10 3/16, or
48%, to 31 5/8; Preview Travel rose 6 15/16, or 41%, to 24; Digital River
advanced 8 3/8, or 39%, to 30 1/8; and electronic-commerce software maker
Open Market rose 8 5/16, or 67%, to 20 3/4. Among the e-commerce giants,
Amazon rose 6 5/16 to 216 5/8, while eBay climbed 4 9/16 to 201 3/8. One of
the day's few losers was Cyberian Outpost, which skidded 6 3/8, or 16%, to
33 1/8. All of those stocks change hands on the Nasdaq Stock Market.
Fueled in part by those dizzying gains, the Nasdaq Composite Index rose
31.23 to a record 2016.44, while the Morgan Stanley high-tech 35 index
advanced 12.32 to 764.98.
The verdict on the holiday shopping season
won't be in until companies post fourth-quarter
results early next year. But analysts say that
even if Internet retailers miss sales targets, it's a
toss-up whether investors will send the sector
tumbling or keep on buying.
Cold, hard numbers may not matter very much
because investors are valuing the companies on
long-term "megatrends" rather than short-term
performance, said Henry Blodget, an analyst at
CIBC Oppenheimer Corp. Indeed, bullish
investors point to projections that consumers
may spend more than $2 billion online over the
holidays, and that 12 million people will go online to make purchases or get
product information on gifts.
Given the incredible gains in retailing stocks, Mr. Blodget says, "there is no
way they will live up to the expectations."
But, he adds, it may not matter that much -- euphoria has driven Internet
retailers' recent gains, and those who missed the early days of the rally "are
getting in despite the price."
However, says Mr. Blodget, if fourth-quarter
numbers for a high-profile Internet retailer fail
to show the kind of explosive revenue growth
that investors are salivating over, it could prove
disastrous for the stock and the sector as a
whole.
For Amazon, the bellwether for high-concept, money-losing Internet retailers,
Mr. Blodget estimates fourth-quarter revenue of $185 million, while Lauren
Cooks Levitan, an analyst at BankBoston Robertson Stephens, thinks sales will
be closer to $151 million.
Another potential danger is if online retailers aren't able to give consumers
the kind of service they're accustomed to receiving from catalog retailers and
traditional shops, said Nicole Vanderbilt, an analyst at Jupiter
Communications, a New York market-research firm.
"Word of mouth has proven to be very important [for online retailers]," she
said. "The last thing an Amazon or a CDNow needs is a disgruntled customer
spreading that word" through chat rooms or online message boards. Also,
there is the possibility that retailers will face the same picky, bargain-oriented
shoppers that traditional stores have had to deal with for the past several
years.
This may be especially true if Internet retailers continue to create the mindset
that things are cheaper online by using promotions and sale offers to drive
traffic, said Robertson's Ms. Levitan. In a recent report she noted that
value-seeking consumers may be a double-edged sword for Internet retailers,
flocking to their sites but only making purchases when items are on sale.
Extra spending on marketing will also put off profitability among Internet
retailers. Traditional retailers refer to the Friday after Thanksgiving as
"Black Friday" because that heavy shopping day is often when they move into
profitability -- the black -- for the year, but almost no one expects a similar
scenario to play out in the online world.
Ms. Levitan is predicting that Amazon won't
be profitable until 2001, and says it could be
longer for some of the smaller players. Still,
she advises investors to focus on retailers that
have big market opportunities -- even if the
firms are focusing on building brand at the
expense of profitability. She has "buy" ratings
on the shares of Amazon and Onsale.
Shares in these companies may be overvalued
and hysteria surrounding the stocks excessive, but online commerce is
growing much faster than almost anyone expected a year ago, said Thomas E.
Miller, an analyst at Cyber Dialogue Inc., a New York Internet research and
consulting firm. "The truth is that many of us believe firmly in the
online-commerce explosion. It's real, it's happening and it's growing
tremendously." |
