Rob S.
Read this b/4 you turn too bearish....
NEW YORK (Dow Jones)- Shares of Internet-based merchants Amazon.com
Inc. and eBay Inc. surged Wednesday after the companies reported
better-than-expected results for the fourth quarter and Amazon said it
doesn't see a seasonal slowdown in sales during the current quarter.
Many investors were expecting a drop in first-quarter Internet sales
after the holidays so Amazon's forecast was encouraging, analysts said.
Amazon (AMZN) late Tuesday posted a narrower-than-expected loss of 14
cents a share on $252.9 million in revenue for the period. Analysts
generally expected Amazon would lose 18 cents a share.
EBay (EBAY) reported earnings of seven cents a diluted share on $19.5
million in revenue - up from a penny a share on $2.6 million in revenue
a year earlier. Analysts had been expecting a profit of four cents a
share. The company also declared a 3-for-1 stock split.
At midday Wednesday, Amazon's shares (AMZN) were quoted at $133, up
about 16% from Tuesday's close of $115.094, after trading as high as
$139.75 in an early burst of investor enthusiasm. EBay's shares (EBAY)
were at $305, up 38% from Tuesday's close at $220.875.
Among other Internet issues showing strong gains Wednesday were
America Online Inc. (AOL), Yahoo! Inc. (YHOO), Excite Inc. (XCIT), Lycos
Inc. (LCOS), Onsale Inc. (ONSL) and UBid Inc. (UBID).
Several analysts agreed that the real market-moving news stemmed from
Amazon's revelation that its first-quarter sales are not expected to
fall below the fourth-quarter numbers. Many expected a downtick in
online sales after the holidays. But Amazon's prediction is encouraging,
analysts said. "That tells you that it ain't slowing down," said RAM
Partners portfolio manager Jeff Matthews.
Morgan Stanley analyst Mary Meeker reiterated her "outperform"
ratings on eBay and Amazon.com. Meeker said eBay's fourth-quarter
results showed strong growth in all of the company's key measures. She
lifted her earnings estimates for eBay to 25 cents a share from 17 cents
for 1999, to 53 cents from 39 cents for 2000 and to 69 cents from 64
cents for 2001. eBay posted operating earnings of 21 cents a diluted
share for 1998.
The analyst said that while eBay's shares, which have risen 1,127%
since its initial public offering in September, will continue to be very
volatile, "we are in for the long haul." Calling eBay "the world's
leading personal trading community," Meeker said the company's market
opportunity is huge.
Meeker also maintained that eBay is "doing quite well" against a new
competitor that is a joint venture of Onsale and Yahoo!, called Yahoo!
Auctions. She said she doesn't expect a new service planned by Sotheby's
Holdings Inc. (BID), Sothebys.com, to have a material impact on eBay
since it will target a narrower, more expensive market.
Regarding Amazon, Meeker said the company also showed "outstanding
growth" in key measures of performance and said Amazon will continue to
spend heavily to build its business. "The company wants more, more,
more, fast, fast, fast - like tens of millions of annuity-like customers
buying tens to hundreds of different products," she wrote. "How are they
going to get there? Spend, spend, spend, fast, fast, fast."
The analyst said Amazon is planning significant capacity expansion
and an increase in sales and marketing and product development expenses
in 1999. The company also plans to increase its product offerings in
1999.
Despite widespread concerns that seasonality could hurt sales in the
first quarter after a strong holiday season, Meeker said she expects
Amazon's sales to rise a modest 5% in the first quarter from the fourth
quarter.
Looking at Amazon's competition, Meeker said barnesandnoble.com, a
joint venture of Barnes & Noble Inc. (BKS) and Bertelsmann AG, is
playing catch-up in the market for online book sales. And in the market
for online music sales, Amazon appears to be ahead of its two biggest
competitors, CDNow Inc. (CDNW) and N2K Inc. (NTKI).
Meeker said she is not concerned by moves by some online retailers -
including Onsale - to sell goods at wholesale prices, a trend that many
fear could could hurt margins for all on-line retailers. Meeker she
doesn't think this business strategy will have a material impact on
Amazon, largely because the company has such good customer service.
Despite the enthusiasm of many analysts, there are doubters who
believe the speculative Internet-stock "bubble" is beginning to burst.
Stanley Nabi, vice chairman of Wood Struthers & Winthrop, said
Wednesday that investors' intense affair with technology stocks, and
particularly Internet issues, raises concern for the broader market.
"There is a great deal of hallucination over the technology stocks,"
Nabi told CNBC. "Technology is the future of the market and the future
of economy. But there is some value or price you have to place... and I
think this has gone too far."
Nabi surveyed 38 companies in the Internet sector and found they have
a market value of about $240 billion, while these same companies have a
revenue base of about $20 billion. "What earnings level would justify
$240 billion?" Nabi asked.
Even by Internet standards, the runup in shares of San Jose,
Calif.-based eBay has been remarkable. At its 52-week high of $321 on
Jan. 8, eBay's market value was larger than that of Toys 'R' Us Inc. and
Neiman-Marcus Group Inc. combined. The company's shares traded at more
than 100 times book value, or the value of its assets minus its
liabilities. At its height, Amazon had a price-to-book ratio of 62.
Concerns over pricing pressure in the electronic commerce business
have pushed down shares of Amazon and other online retailers in recent
days. Still, analysts say Amazon's well-known brand name and its
expertise in filling orders gives the company a huge advantage in
attracting customers.
Wednesday, a Lehman Brothers analyst began coverage of Broadcast.com
Inc. (BCST), the Dallas-based broadcaster of radio and TV programs over
the Web, with a "buy" rating and a 12-month price target of $200. The
target is 44% above Tuesday's closing price of $138.75 and is 11 times
the stock's $18 price tag when the company went public in July.
The same analyst, Brian Oakes, began coverage of At Home Corp. (ATHM)
with an "outperform" rating and a 12-month price target of $130. The
shares closed Tuesday at $109.875.
In another development involving eBay Wednesday, Chief Executive
Margaret Whitman said the company has a responsibility to users to make
the Internet auction house the safest place to buy, sell and trade
items.
"We have zero tolerance for fraud. As we told the New York City
Department of Consumer Affairs, we are most anxious to help them in
their investigation and eBay has had a long-standing policy of working
with law enforcement officials," Whitman told CNBC.
The city's Department of Consumer Affairs confirmed Monday that it is
investigating claims of fraud against eBay. The investigation stems from
concerns that some sports memorabilia sold on eBay's service has been
falsely labeled as one-of-a-kind.
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