November 29, 1999 1:10 PM PST

Investors yawn at early online sales

E-tailers today reported a strong start to the online holiday shopping season, but investors failed to catch the spirit of the season.

Internet behemoth America Online reported that 4 million of its 19 million members made an online purchase last week, spending three times the amount spent during Thanksgiving week last year. E-commerce giant Amazon.com said that 2.5 times more orders were placed on its site during the past weekend than during the same weekend last year.

Macy's online Web store, Yahoo and Borders Online all reported similar gains.

"I would say that [the numbers] are within our expectations, and we expected the highest volume of shopping [online] that anyone's ever seen," said Amazon spokesman Paul Capelli.

Similar news last year sent e-commerce stocks flying to record valuations. But this year the reaction has been muted largely because expectations have been high for several weeks. Shares in Amazon, Yahoo, AOL and Barnesandnoble.com dipped slightly today.

"The numbers are better than we expected to see out of the chute," said Forrester Research e-commerce analyst David Cooperstein. But he added that "online retailers have to cross a high bar to meet expectations."

Henry Blodget, a Merrill Lynch analyst, concurred in a report that he issued today. "Data released over the weekend show that online holiday shopping is off to a strong, though not extraordinary, start. We continue to expect the stocks in the group to be strong over the next few weeks, but also continue to think it likely that they will pull back early in [2000]."

Blodget noted that while Amazon reported Thanksgiving Day sales grew 2.5 times, last year the growth was about 4 times.

He added that last year's Thanksgiving performance proved an "excellent proxy" for fourth quarter revenue growth, which jumped 300 percent more than the previous year. This year's holiday performance indicates a strong--but not amazing--fourth quarter lies ahead, Blodget said.

In addition, he said portals Yahoo and Lycos are viewed with little investor enthusiasm because the companies are new to e-commerce.

"It's hard for Amazon to really surprise investors. Everyone expects a good Christmas, so it has to be a really good Christmas to beat everyone's expectations," said John Segrich, an analyst with CIBC World Markets.

By comparison, as news trickled out last year about the success of online holiday retailing, many Net stocks soared.

"Last year was a breakout year for e-commerce," said Abhishek Gami, an equities analyst at William Blair. "People were taken a bit by surprise, and remembering that they got in ahead of time [this year], driving these stocks higher significantly over the past couple of months."

In August, many Net companies and analysts began issuing their expectations for the holiday season, and investors took note. Between Aug. 2 and Nov. 24, Amazon climbed 86 percent, Yahoo was up 75 percent, America Online jumped 81 percent, eBay nearly doubled and Barnesandnoble.com was up 13 percent. Some laggards during the same period included CDNow, down 18 percent, and Beyond.com, down 48 percent.

During the past few months, many companies also launched massive ad campaigns. Investors are now looking for a payoff.

"We'll have to wait till January to see the fourth quarter figures come in to see how successful the holiday season was," said David Simons, managing director of Digital Video Investments. "In particular, I am interested in seeing the return on investment that they have been throwing on advertising on TV and radio."

Analysts also note that this year there will be less holiday cheer for second-tier e-commerce players and more differentiation in the market.

Last year, all e-commerce and portal companies were lumped together, said Alan Mak, an analyst with Argus Research. So when Yahoo indicated it was facing a strong holiday season, other Internet stocks rose in tandem because there were few companies in the space. This year it's different.

"This year, there are more players, and its content and commerce--not just Internet," Mak said. He added that lesser known companies such as Cyberian Outpost will not receive the run-ups that they encountered last year.

News.com's Sandeep Junnarkar and Greg Sandoval contributed to this report.

 

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