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Amazon and eToys Pump Up for the Christmas Rush They both have new initiatives that sent investors wild. But just remember 1998's "post-holiday blues" For weeks now, excitement has been building among Internet investors over the coming holiday season. But Sept. 29 was a day when their exuberance really bubbled over. That's when the two stocks that are arguably poised to benefit the most from Christmas on the Net -- Amazon.com (AMZN) and eToys (ETYS) -- each announced bold new initiatives, and several analysts came out with positive research reports, sparking double-digit percentage gains in both stocks. Amazon.com started the day by announcing its new "zShops" initiative, which essentially opens up its site to anyone who wants to sell goods to its 12 million customers. The idea is to create a new, high-margin revenue stream for Amazon. And indeed, Merrill Lynch compared the move to eBay's auction model, because Amazon will essentially match buyers and sellers and take a slice of transactions without having to deal with inventory. That should provide some upside to money-losing Amazon's gross margins and leverage its customer base. After the announcement, Amazon rose 14 7/8 points, or 23%, to 80. Also on Sept. 29, eToys announced the launch of its "Idea Center," a new area of the site that combines content for parents and kids with product pitches. Goldman Sachs upgraded eToys and raised its price target to $80 from $60, citing the Idea Center launch among several achievements for the site that "position it to be a leading benefactor during the '99 holiday season." The stock rose six points, or 10%, to close at 65 7/8. NO SUMMER LULL. For analysts, who have been trumpeting these e-commerce stocks for weeks now, the announcements were icing on the cake for what they say promises to be a banner year for online commerce. Research firm Jupiter Communications predicts that consumers will spend $6 billion online in November and December, up from $3.1 billion for the same period last year. Alexander Cheung, manager of the Monument Internet Fund, thinks that Jupiter's estimates are conservative and that e-commerce spending could more than triple this year over last. "We think this Christmas will really prove the mass-market relevance of e-commerce," says Christopher Vroom, an analyst with Thomas Weisel partners. He thinks the Internet will account for 20% of all the growth in retail (online and offline) this year. "I think it is going to surprise people." The fact that e-tailers did not suffer retail's traditional summer lull, but continued to grow in June and July and dipped only slightly in August, signals that a big holiday season is on its way, predicts Lauren Cooks Levitan, an analyst with BancBoston Robertson Stephens. For investors, however, some caution may be in order. First of all, there's last year to remember. While 1998 was a watershed year for e-commerce as a boom in holiday spending and traffic fueled the meteoric rise in Internet stocks, the sector plummeted the following spring after the holiday euphoria faded. "Investors that were in the game last year may still be smarting from the post-holiday blues," says Steve Harmon, chief executive of e-harmon.com, a San Francisco Internet investment firm. "I think investors will be a little more cautious this year because they saw what happened in the spring," he says. Cheung agrees that this year "we won't have the same dramatic runups and fallbacks."
For now, Levitan, like many e-tailing analysts, is confident that both Amazon and eToys are ready for prime time. Analysts credit both companies with being prepared to meet the impending surge in orders and demands on customer service. Vroom thinks Amazon's much-criticized strategy of adding distribution centers will pay off in spades during the holidays. And eToys' emphasis on customer service and excellent front-end customer interface will make it a winner, he says. His price target is 85 on Amazon and 75 on eToys. While Amazon and eToys are the clear favorites, many analysts also have their own crop of secondary stocks that they think will benefit from the holiday season. Off the holiday hype list but worth a look are music store CDNow (CDNW) and teen clothing retailer iTurf (TURF), says Harmon. Electronic payment stocks such as CheckFree Holdings (CKFR) and CyberCash (CYCH) should also benefit from the Christmas period, he believes. "LIKE CHRISTMAS DECOR." Andrea Williams, an analyst with online investment bank E*Offering, thinks that America Online (AOL) and Yahoo! (YHOO) will get a boost from rising holiday traffic. "The huge growth in traffic will ultimately be translated into revenues," she says. Another favorite of hers is CNET (CNET), which she thinks will see a surge in visits from customers researching computer hardware and software gifts. Cheung's holiday list includes AOL, eBay (EBAY), Onsale (ONSL), and Preview Travel (PTVL) as well as Amazon and eToys. He also mentions online advertising firms DoubleClick (DCLK) and 24/7 Media (TFSM) as beneficiaries. While holiday hype has been building and Sept. 29 was a big day, there will be plenty of room for investors to get into these stocks. Says Williams: "Uncertainty surrounding the market in general will still create buying opportunities." But investors should keep in mind that playing stocks during the holiday season remains something of a trading game and that what they purchase now may not be long-term holds. For both Amazon and eToys there is the small problem that, despite dramatic projections for revenue ramp-ups, neither company is even projected to report profits before 2002. "Keep in mind that e-tailing stocks can be like Christmas decor," says Harmon. "You put it on the tree in November or December, but by Jan. 1 it might look dated." Amey Stone is an associate editor at Business Week Online _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ |
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 Amey Stone covers the markets and investing for Business Week Online WEB POINTERS To visit some of the sites mentioned in the story, click here: Amazon eToys BancBoston Merrill Lynch e-harmon.com Jupiter Communications Monument Internet Fund Goldman Sachs iTurf CDNow CheckFree CyberCash America Online E*Offering eBay Onsale Preview Travel DoubleClick 24/7 Media | |||||||||
