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E-Tailers Get Post-Holiday Blues

As far as investors are concerned, the bottom line on the success of this year's online shopping season won't be determined until they start seeing some bottom lines from e-tailers next month.

Despite record traffic levels -- and perhaps because of record traffic levels -- a skeptical market is ignoring the hype about a breakthrough holiday shopping season for Web retailers, choosing instead to wait for quarterly earnings reports that ultimately will reveal the winners and losers.

(Investors would do well to apply this skepticism to other sectors such as infrastructure and e-commerce, which contain some of the most overpriced stocks in the Internet universe.)

A number of e-tailers took a hit in Monday's trading session, the first since Christmas. eToys (ETYS) fell $5 per share to 25 15/16 (though it had rebounded to 29 per share by Tuesday afternoon), while Amazon.com (AMZN) lost nearly 10% to finish at 81 1/8 (AMZN was at 83 3/4 Tuesday afternoon). And from last Thursday's closing through mid-Tuesday trading, Egghead.com (EGGS) was down by 13%, barnesandnoble.com (BNBN) by 8% and Smarterkids.com (SKDS) by 11%.

Unfortunately for e-tailers, this rough treatment is no post-holiday rude awakening. The sector has been the worst-performing of the past month, even though data from Media Metrix (MMXI), Nielsen/NetRatings and PC Data provide strong evidence that this indeed has been a watershed year for online shopping.

The main reason for the market's caution -- and I think a valid one -- is that increased traffic does not guarantee a commensurate increase in revenue. Increasingly, online shoppers are doing exactly that -- shopping around, comparing sites and prices. Thus, parents surfing for the best deal on a Pokemon character might visit four or five different sites. Those sites all will register another unique visitor, but only one may get the sale.

Another reason for investor angst about e-tailers are reports of late shipments, unfulfilled orders and other assorted snafus. Many analysts warn that companies who fail to meet all orders will be punished severely by disgruntled shoppers who will vow to never again do business with the offending e-tailer.

I believe this concern is overblown. Not expecting potential shipping problems in the last days before Christmas is like not expecting a full parking lot at the local mall on Dec. 23. Most consumers might get frustrated, but few will nurse grudges unless the problem ruined the holiday, and only the worst-performing e-tailers will suffer long-term damage.

Until the revenue numbers start coming out a few weeks from now, the e-tailer sector likely will remain in an uninspiring limbo.


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