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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