Sunny Outlook Holds For e-Commerce

Investment firm Merrill Lynch said the online experience is only getting

better for consumers, and it expects business operations on the Web to tally a

20 percent increase in e-commerce and 14 percent rise in online travel

bookings growth from the second quarter of 2005.

Those numbers far exceed the total U.S. commerce and travel spending that

is expected to be up 6 to 8 percent and 4 to 5 percent

respectively, according to the company’s e-commerce research report.

“We believe the secular growth opportunity will continue to support

premium P/E (price to earning ratio) multiples versus offline retail/travel

peers for the foreseeable future,” the report said.

E-commerce sales and online travel bookings are on track to meet, but not

significantly beat, expectations, according to the firm. After a strong May,

the company said e-commerce sales volume dropped in June, eroding some

potential upside surprises.

“We aren’t expecting a significant change to the 2005/2006 margin outlook

for e-commerce leaders,” the report said. Margin pressures from offline

encroachment, comparison shopping (e-commerce and travel search), increasing

capital investment and higher advertising costs are likely to weigh on 2Q05

operating income growth rates.”

The projections arrive at a time when consumer confidence online appears

shaky, as reports of phishing and pharming attacks and lost or stolen

personal data spread.

However, according to research firm Gartner, one out of three Internet

users is buying less online because of security concerns related to data

breaches, identity theft and phishing attacks.

The survey of 5,000 U.S. adults said they worry more about thieves getting undetected access to private credit reports private credit reports and other sensitive financial data than

defending against phishing attacks.

“We are seeing unprecedented levels in consumer transactions online. Yet

businesses cannot rely on the Internet to lower costs and improve marketing

efforts indefinitely if consumer trust continues to decline,” Avivah Litan,

vice president and research director at Gartner, told last month.

The report called international expansion and consolidation “key growth

drivers” for the second quarter of 2005. Amazon and eBay are well positioned to generate incremental growth from their existing e-commerce platforms, while Overstock and Priceline should continue to experiment with new product initiatives, the firm said.

Merrill was also bullish on acquisitions by IAC, which bought AskJeeves,

and eBay’s grab of to create new domestic and international

revenue opportunities.

Although online business is set to boom, according to the report, the

stock outlook was mixed.

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