Despite declines in consumer confidence, a relatively unstable labor market and the G-20 emphasizing deficit reduction, three Internet retailers are illustrating a spark of light and could pose an opportunity.
The first is Netflix (NFLX). The Los Gatos, California-based online movie rental subscription company offers consumers a relatively cheap form of entertainment which can be streamlined directly to a personal computer or television with the touch of a button. Additionally, the company does not charge late fees or impose due dates on movies that are delivered via mail, enabling a consumer to be flexible without being charged. Thirdly, the monthly subscription fees charged by Netflix are much lower than the cost of watching a movie at the movie theater or renting one from a local movie store. Lastly, Netflix is trading above both its 50 and 200 day moving averages and is up nearly 104% year-to-date.
A second Internet retailer that is positioned relatively well is Amazon (AMZN). Recently, the company announced that it plans to start selling a new era of e-books that comes embedded with both audio and video. Additionally, Amazon plans to release a feature utilizing HTML 5 and CSS 3, the latest web standards which are being used as an alternative to Adobe’s (ADBE) Flash, which will allow readers to view samples of books directly from a Web browser, further enhancing its "e-books everywhere" approach. In the past, Amazon has required readers to send a sample section of a book to a device before it could be previewed. To further bolster Amazon’s appeal, the company just released a free Kindle application for download on Google (GOOG) Android phones, extending the application’s reach which was previously only available on Blackberrys and iPhones.
The third retail retailer to watch is eBay (EBAY). The company, which offers an online forum for buying and selling merchandise, trades nearly $120,000 worth of goods every minute and boasts a user base north of 90 million. Additionally, eBay has shown stable global e-commerce growth and recently announced, jointly with Research In Motion (RIMM), that a free application has been made available to Blackberry users in Australia, France, Germany, Italy, Spain, the United Kingdom and North America. The application will enable Blackberry users to bid, buy and check their eBay transactions and activity almost anywhere, further increasing convenience for the consumer.
In a nutshell, during times of economic hardship and uncertainty, consumers tend to flee to cheaper options and the aforementioned Internet retailers make this easier and more convenient for the consumer. As for the near future, it appears like Internet shopping has become a staple of consumer behavior and will likely continue to play an inherent role in a consumer decision.
Some ways to play all three of these retailers include the following:
- Internet HOLDRs (HHH), which allocates 39.94% of its assets to Amazon and 18.12% to eBay.
- First Trust Dow Jones Internet Index (FDN), which allocates 6.89% of its assets to Amazon, 5.11% to eBay and 4.10% to Netflix.
- PowerShares NASDAQ Internet (PNQI), which allocates 7.95% of its assets to Amazon, 6.98% to eBay and 4.8% to Netflix.
Although these retailers show some signs of prosperity it is important to keep in mind that they are directly correlated with overall consumer spending and carry inherent risks. To help mitigate these risks, the use of an exit strategy which identifies when an upward trend in these equities could come to an end is important.
According to the latest data at www.SmartStops.net, the price points are as follows: NFLX at $107.06; AMZN at $102.55; EBAY at $19.03; HHH at $47.69; FDN at $23.48; PNQI at $24.74. These price points are reflective of market volatility and conditions and change on a daily basis.
Disclosure: No Positions