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THE WEEK AHEAD: Amazon.com, eBay earnings on deck

    Microsoft's (Nasdaq: MSFT) outlook may pressure tech stocks next week, but there's another blockbuster line up of earnings to distract investors. Amazon.com and eBay earnings are on deck.

    A report from Amazon.com (Nasdaq: AMZN) will be watched closely by investors, who are increasingly worried about profits. Meanwhile, expect an upside surprise from eBay (Nasdaq: EBAY).

    The Nasdaq recovered slightly to 3,643 last week, after a fortnight of volatility, which had some screaming that the index may be on its way to 3,000. Most of the stocks regaining ground were tech bellwethers, such as Cisco (Nasdaq: CSCO) and Applied Materials (Nasdaq: AMAT).

    Morgan Stanley Dean Witter analyst Mary Meeker said in a report that Internet leaders could also be poised for a rebound, even though the sector as a whole could fall further. Meeker said that there are some "compelling" Internet stock values.

    Analysts aren't expecting any surprises from Amazon (Nasdaq: AMZN) in its first quarter report, slated Wednesday.

    Wall Street is expecting a loss of 36 cents a share, on a revenue base just below $600 million. Sales are expected to be lower because of a seasonal slowdown. Analysts are looking to gross margins for signs of improvement.

    Gross margins should be around 20.4 percent, said Tom Wyman, an analyst for J.P. Morgan. Wyman said there may be some potential for sales improvement, but don't expect Amazon to top $600 million in revenue. Wyman is predicting a loss of 42 cents a share, slightly worse than consensus, on revenue of $587 million.

    On the topic of profits, Wyman predicts Amazon may "continue to sing from the same song sheet" and indicate that gross margins will continue to improve.

    Wyman has a "buy" rating on Amazon, and said he expects shares could gain once investors realize it will be one of the few e-tailers left standing. "Amazon has enough cash to last through 2002," he added.

    Merrill Lynch analyst Henry Blodget also predicts a sequential decline in revenue from $676 million in to $545 million, the first quarter-over-quarter decline in revenue for Amazon since inception.

    Blodget said he expects gross margins to improve to 19 percent from 13 percent in the fourth quarter. Blodget also said "the gradual maturation of the e-tailing market" could contribute to slowing revenue growth.

    eBay (Nasdaq: EBAY) is expected to reveal a strong first quarter on April 25, with revenue of about $79.9 million and operating earnings of 3 cents a share, according to First Call's consensus of 25 analysts.

    Blodget noted eBay's "operating profit is still modest," but the company's "high gross margin as a market maker, and low customer acquisition cost as a grass roots phenomenon" make it on of the only profitable consumer e-commerce companies.

    Blodget is expecting earnings in line with those of the Street, and operating profits, which may exceed $53 million. "One to two cents upside seems likely," he added.

    Derek Brown, analyst for WR Hambrecht & Co., who has a "strong buy" rating and a $225 price target, said he believes eBay may surpass expected results.

    Rumors that eBay may link up with Yahoo! (Nasdaq: YHOO) persist. Brown said that though a partnership looks more likely than a merger, the potential for synergy may be too good to resist. A relationship with Yahoo would provide distribution for eBay and eliminate Yahoo as a competitor. Yahoo would benefit by gaining access to a "sticky" e-commerce platform.

    Other earnings for the week include:

  • Electronic Data Systems (NYSE: EDS), expected to report a first quarter profit of 47 cents a share;

  • Priceline.com (Nasdaq: PCLN), expected to report a first quarter loss of 6 cents a share;

  • About.com (Nasdaq: BOUT), expected to lose 58 cents a share in the first quarter;

  • And VerticalNet (Nasdaq: VERT), expected to show a first quarter loss of 27 cents a share.


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