Investors scarred by the recent performance of several noteworthy e-commerce stocks will probably not see much near-term relief, but might be pleasantly surprised by the long-term outlook, a sampling of industry analysts revealed.
The pain of Amazon’s (Nasdaq: AMZN) struggle toward profitability should continue but could pay off for the stock within a year, the analysts told the E-Commerce Times.
Furthermore, Priceline (Nasdaq: PCLN), Buy.com (Nasdaq: BUYX) and Webvan (Nasdaq: WBVN) have upside potential, even though a McDonald’s Happy Meal currently costs more than a share of those companies.
Meanwhile, with its exceptional position in the online auction business, eBay (Nasdaq: EBAY) should have a relatively smooth ride over the coming months.
Amazon (Friday close: $31 9/16)
Analysts seem cautiously optimistic that Amazon will become a more efficient company. Bear Stearns has given the online retailer a 12-month price target of $55 per share, analyst Jeffrey Fieler said.
“Is the company becoming successful at selling non-books, music, DVD?” Fieler asked. “In other words, are they successful in transferring customers to the new product lines? We think there’s evidence that the strategy is working.”
Fieler added that Amazon has built a number of distribution centers, more than doubling operating costs as a percentage of sales in the fourth quarter last year. However, that percentage is receding as efficiency improves.
“It’s a learning curve activity,” Fieler said. “The more you do it, the better you get at it.”
Still, some observers remain skeptical of Amazon’s long-term prospects. Writing in a research brief, Banc of America Securities analyst Tom Courtney was not impressed by Amazon’s claim last month that the company can generate 50 percent sales growth over the next 10 years.
“If management can achieve that goal, we would be proven wrong,” Courtney said.
However, analyst Mark Maheny of Morgan Stanley Dean Witter told the E-Commerce Times that Amazon “will be very clearly on a path for profitability.”
eBay (Friday close: $59 7/16)
Maheny likes eBay even more. Until dropping $4 15/16 per share Friday, the online auctioneer had as much overall momentum as any major e-commerce stock.
“Both [Amazon and eBay] should have fundamentally strong fourth quarters and then eBay should have a fundamentally strong first quarter,” Maheny said.
Merrill Lynch analyst Dan Good told the E-Commerce Times that the first quarter is eBay’s strongest for several reasons. People who get new computers flock to the site, as do those who try to unload less-than-ideal holiday gifts.
Good extolled the virtues of eBay, saying that it has “unbelievable market position, a great model.” One advantage for eBay is that its customers handle inventory and fulfillment issues that conventional e-tailers have to handle themselves.
“People recognize [eBay] has got a very fast-growing business,” Good said. “It’s a commerce-related model but it’s got 70 or 80 percent gross margins.”
Priceline (Friday close: $5 9/16)
Priceline has been battered like Rocky in the 15th round, with plenty of people flinging in the towel. Skulled by revenue disappointments and investigations into its business practices, the name-your-price e-tailer has fallen 95 percent from its 52-week high of $104 1/4 in March.
One could hibernate for a long winter and probably not miss any significant recovery in Priceline’s share price. However, there is still long-term hope for the stock, according to Good, if Priceline can reduce its dependence on its signature offering, airline ticket sales.
“Hopefully, in that time when people aren’t expecting a lot of things out of the company, they’re also building traction in these other areas,” Good said.
For Part II of this report, click here.