December 27, 1999 2:00 PM PST

Impatient investors put pressure on Net stocks

As they awaited sales figures for the crucial holiday season, impatient investors today sold off shares in numerous Net companies.

In early trading today, several Net stocks were off 5 percent to 10 percent. For instance, Yahoo was down more than 22 and Amazon was off about 9. But Yahoo later reversed course, gaining 12.38 to close at 415. Amazon finished the day at 81.12, down 8.88.

The tech-heavy Nasdaq composite index, which had been down sharply early today, recovered to post a slight gain.

Shares of eToys, which have been sliding for weeks, dropped 5 to close at 25.94 after influential investment bank Robertson Stephens downgraded the stock to a "long-term attractive" from "buy." One of the reasons cited by the bank's analyst Lauren Cooks Levitan was research showing that eToys' overall customer satisfaction rating has declined.

"We believe the company can maintain its status as the preeminent children's e-tailer, [but] we further believe it is likely the company could incur significant expenses associated with restoring any customer faith that has been eroded during this challenging period," Levitan said in her report.

Alan Mak, an analyst with Argus Research, said investors may have been spooked by eToys' order fulfillment problems noted in Levitan's report and applied those concerns to the entire sector.

"eToys is a pioneer in the toy space and if they were having troubles, investors may be asking themselves what other companies may also be suffering the same thing," he said.

Additionally, there are no events on the horizon that could push up e-tailers' stocks.

Most companies will release quarterly earnings results next month. Although analysts expect many e-tailers to post strong revenues, the lack of profits could cause some dismay.

Not so happy holidays
Investors have shunned some Net stocks during the crucial Thanksgiving-to- Christmas period.
Company Nov. 24 Dec. 27 % change
Yahoo 231.00 414.94 80%
Amazon 87.25 81.13 -7%
barnesandnoble.com 19.81 15.00 -24%
eBay 179.50 134.00 -25%
eToys 64.38 25.94 -60%
Source: DBC
"I think the bottom line is becoming increasingly important," said Mak. "I don't think investors ever doubted that the top line would be good."

In addition to Levitan's report, e-tailers may have experienced some pressure on their share price from Priceline's announcement it would enter the auction business, marking the latest competitor to join an increasingly crowded field, Mak said.

As expected, online sales slowed shortly before Christmas Day as the likelihood of on-time deliveries decreased. According to a survey released today by Goldman Sachs/PC Data Online, home users spent just under an estimated $900 million in the week of Dec. 13-19. That is a 25 percent drop compared to the holiday shopping peak of about $1.2 billion for the previous week.

"It will be interesting to watch whether we see a jump in online retail this coming week as buyers begin the search for post-Christmas sales," said Cameron Meierhoefer, Internet analyst for PC Data Online. "Post-holiday consumers look specifically for 'bargains' and will look to see whether online retailers are ready to compete with their brick-and-mortar competitors."

Yahoo today said it had a record order volume on its shopping site between Thanksgiving-the traditional start of the holiday shopping season--and Christmas Day. The Web portal giant said orders rose more than 385 percent compared with last year's holiday season.

Online book and music seller Barnesandnoble.com said it was not yet breaking out its holiday sales from all sales. However, the company note that sales between Thanksgiving and Christmas were running more than 200 percent better than last year.

America Online said it drew 2 million first-time buyers since the Thanksgiving weekend. The company will not report holiday sales figures today, according to a representative.

For the third week in a row, toys and music categories were ranked on top with over 1.1 million estimated unique buyers each, according to the Goldman Sachs/PC Data Online. Book sites came in third with over 1 million estimated unique buyers. Online software sites also were strong, matching the previous week's spending levels.

While final sales figures are still a few days away, Jill Frankle, director of retail research at Gomez Advisors, said one lesson is clear: E-tailers must improve their ability to take orders and ship items.

"During the 1998 holiday season, we saw many sites having a lot of technical difficulties and merchants invested in improving the infrastructure," said Frankle. While some sites, including Amazon.com, did stumble this season, she said there was a vast improvement in respect to technical issues. "This time, things broke down after the transaction took place."

To remedy the situation for next year, online retailers must invest in improving their fulfillment and distribution capabilities, analysts said.

"The demand may have really outstripped what they had in their distribution facilities or they may not have had the items they said they had," said Frankle. "It would make sense to build real-time inventory systems so the site displays exactly what is on the shelves in the distribution centers."

 

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