E-Commerce Earnings Preview: Q2 Results Look Promising

As companies prepare to report results this month for the quarter ended in June, some analysts believe that the e-tail industry might be pulling out of its slump -- with those companies that survive the downturn likely to thrive.

Year-over-year comparisons for many battered e-tailers look favorable against last year's second-quarter results, which reflected the early effects of the dot-com boom's end.

Online travel companies Travelocity (Nasdaq: TVLY) and Expedia (Nasdaq: EXPE) are forecast to report operating profits, compared to losses in the year-earlier quarter. Additionally, Internet auctioneer eBay (Nasdaq: EBAY), already profitable a year ago, is likely to see earnings rise again this quarter.

According to Goldman Sachs analyst Anthony Noto, some Internet stocks, including eBay, Homestore.com (Nasdaq: HOMS) and Priceline.com (Nasdaq: PCLN), "represent relatively attractive investments" with the potential for growth.

Growth Forecast

Though e-commerce sales will likely grow at a 35 to 40 percent rate this year, down from 68 percent in 2000 and 132 percent in 1999, the slowdown "is a result of not having reached the mass market," Noto wrote in a research note last week.

"Growth longer-term will likely be driven by improvements to the consumer experience via enhanced technology, broadband and digital products," the analyst wrote.

eBay on Top

eBay, according to Noto, is "the best positioned e-commerce company," with a "clear leadership position" and the ability to grow without spending a lot of capital.

Noto expects eBay to earn 9 cents per share in the quarter ended June 30th, on revenue of $167 million. In the year-earlier quarter, the company earned 5 cents per share.

eBay was one of the first Internet companies to achieve profitability, and by all accounts, the company continues to lead the market. In a recent report from Nielsen//NetRatings and Harris Interactive, which found that online auction sales soared 149 percent in May to $556 million, eBay accounted for more than 65 percent of overall revenue.

Travel in Black

Meanwhile, Travelocity and Expedia have both reported strong demand for their services. Analysts expect Travelocity to earn 4 cents per share in the quarter just ended, against a loss of 26 cents a year earlier. Expedia is pegged to earn 9 cents, compared with a loss of 30 cents.

Both companies moved into the black in the first quarter, posting operating profits amid surging demand online for airline and hotel reservations.

A shift back to its travel roots should also help Priceline, which, analysts say, will report a profit of a penny per share, against a one-cent loss a year earlier. As the company continues to aim for profitability, it has improved customer service and shed costly operations like grocery and gasoline services.

Not All Good

Internet portal Yahoo! (Nasdaq: YHOO), however, is likely to see per-share earnings fall to breakeven from 12 cents in the year-earlier quarter, having not yet made up for sales lost to a slumping online advertising market.

Amazon is also forecast to report a loss, though a smaller one: 21 cents per share in the quarter, compared to 33 cents a year earlier. Sales from the company's books, music and video segment "should likely stabilize this quarter," Noto said.

Overall, analysts are not looking for a real upturn in the technology sector until next year, when the results of a series of U.S. Federal Reserve interest-rate cuts kick in and demand in other sectors of the technology industry picks up. While companies may meet or exceed expectations, in many cases those expectations have been lowered, they say.

"I would still be looking for warnings about the third quarter and pre-announcements that are going to worry the market," Barry Hyman, investment strategist at Ehrenkrantz King Nussbaum, said in an interview. However, "interest rates will come to the rescue at some point," he added.