Consumers say they will be spending more money online this year, but investors are still frightened by the whole business-to-consumer segment after months of bankruptcies, missed earnings and mounting losses.
Venture capitalists have all but given up on the B2C market unless there is a road to profits and positive cash flow within a few years.
Market research firm Greenfield Online says a survey of 4,500 savvy online consumers found that one-third expect to spend more for holiday gifts this year, both online and offline, than they did in 1999. Eighty-four percent expect to head for retail sites, and respondents say they expect to spend US$485 on average; Amazon.com is the site to which most of them will go.
CDs and tapes lead the list of likely purchases, followed by books, toys and games, clothing and gift certificates. Best price and guaranteed delivery are the top attractions, with customer service next. Sites that charge for shipping may lose business, since 61 percent of those who buy on the Web say they have skipped sites that do not provide free shipping.
For the season to be successful, there will have to be an uptick in the number of new users who come onto the Internet, Lauren Levitan, an analyst at Robertson Stephens, says in a report. But even that may not overcome doubts about online-retailing models, the choppy stock market, high valuations and a changing online advertising market, Levitan says.
Investors are looking for safe harbors, she says.
Levitan expects eBay, her favorite stock, to report US$417 million revenue for the year, slightly higher than the consensus of US$410.9 million. EBay ranks second only to Amazon in unique visitors, she notes.
Amazon still has to convince investors it can make money long term, and its stock will be volatile until it does. The company should report revenue of US$2.7 billion and a loss of US$1.27 per share, says Henry Blodget, Internet analyst at Merrill Lynch & There is a wide disparity in analysts' estimates of Amazon's earnings. For the final three months of the year, the high estimate is a 35 cent-per-share loss; the low is a 17 cent loss. For the year, the range is US$1.17 to US$1.39 per share in red ink.
The spread is tighter for eBay. The lowest earnings estimate is 5 cents per share in the fourth quarter, and the high is 8 cents. For the year, estimates range from 15 cents to 21 cents.
There could still be opportunities if B2C companies show they have a good business model with a definable path to profits, says Scott Johnson, managing director at the DFJ New England Fund. "Those are the fundamental things that have made for solid venture capital investing for 30 years," he says.
