Originally published February 13 2005
As e-commerce becomes more competitive, investors grow wary
by Mike Adams, the Health Ranger, NaturalNews Editor
Stock prices of e-commerce sites such as Amazon and eBay are off by as much as 40% since the beginning of the year, as investor concerns over increasing competition become stronger. The companies may be victims of their own success, as their demonstration that e-commerce is a viable business model has led other firms to jump into the marketplace, increasing competition and eroding profits.
Shares of companies in the sector rose nearly 80 percent last year, among the best performances in the entire stock market.
Amazon had been holding up better than the other two until Thursday, when the stock fell 15 percent after the company announced fourth-quarter earnings.
Professional investors are divided over whether the declines are just a glitch in an upward trend or the start of a more serious fall.
The optimists are encouraged by strong growth in profits and revenue; the pessimists are deterred by the high valuations at which the stocks now trade - about 60 times the last 12 months' earnings for eBay, and 38 for Amazon.
A report by Smith Barney predicts annual online sales growth of 15 to 20 percent for the next few years and 10 to 15 percent over the next 5 to 10 years.
The problem for investors, and for executives of online retailers, is that swift growth attracts many new players, said Safa Rashtchy, an Internet media and marketing analyst at Piper Jaffray in Menlo Park, Calif.
Google is in a good spot, and Yahoo, Ask Jeeves and Shopping.com are going to be prime beneficiaries" of a trend toward use of comparison-shopping sites.
The comparison-shopping sites generate revenue when companies pay to advertise on them; in turn, they pay for ads on bigger search engines like Google.
One comprises platform providers like eBay that can benefit as the numbers of buyers and sellers increase, making the sites still more attractive to other users.
Amazon and smaller companies like Blue Nile reverse the order: they sell products, then pay suppliers weeks later, a process that can work financial wonders.
Mr. Rashtchy called it "a great company," but he added that "some of the risks are not reflected yet" in its share price.
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