E-tailers Show Mixed Earnings Reports

Includes: AMZN, EBAY, NFLX
by: Neil Kokemuller

While earnings in the credit sector have garnered much of the attention the last couple weeks, there have been several important earnings announcements from some big name online-only retailers. The results so far have been mixed with some companies apparently weathering the economic storm, and others suffering along with brick-and-mortars stores and multi-channel retailers during the downturn.

Among last week’s top reports, Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX), and Ebay (NASDAQ:EBAY) provided insight into the current status of the online retail market. Many forecasts have suggested that internet sales should continue to grow in the next several years while traditional retail sales might stay flat. Some projections indicate that the portion of online sales to total purchases could virtually double in the next 2-3 years, from a current rate of 6 per cent, to around 12 per cent of total retail sales.

Amazon certainly has done its part to support the notion that more consumers are turning to the convenience and efficiency of online shopping. The company posted its second straight positive earnings surprise Thursday (April 23). For its first quarter, Amazon sold $4.89 worth of good for an 18 per cent boost. Analysts had expected 15 per cent growth. Net income was $.41 per share, a remarkable $.10 more than was predicted.

Netflix has been the darling of the movie rental industry in recent quarters with its powerful dominance of the online mail order market. The company did not disappoint with its $.37 per share earnings report for its first quarter. It raised its projected subscriber base to a remarkable 11.2-11.8 million by the end of 2009. Netflix also raised its year EPS forecast range to $1.56-1.72.

Why then, did investors drive down the rental company’s stock over $3 per share after hours, to $42.29? CEO Reed Hastings commented that despite its strong condition, there is good potential that growing competition for $1 kiosk renters (eg. Redbox) could eat into market share. This on the heels of Blockbuster’s (BBI) announcement of its expectation to reach 10,000 kiosks by the end of 2010.

Internet auction giant Ebay also bested its expectations for its first quarter. The company announced a little over $2 billion in revenue and earned $.39 per share during its first quarter. Along with stability in its basic business of connecting online buyers and sellers through an internet marketplace, company CEO John Donahoe said continued success in PayPal makes Ebay a well-balanced operation.

Certainly, these three leading players in the e-tailing sector demonstrate the strong growth in internet business and e-commerce. Most analysts predicted trending from traditional stores to the internet prior to the onset of the recession. Internet strengths of convenience and economy have only strengthened its growth.

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