2HRS2GO: Online shopping ahead of estimates? Only for some

3 min read

Half full or half empty?

"It's the Ho Ho Holidays: IDC Survey Indicates Consumer Online Sales Exceeding Expectations," declares the latest news release from market research firm International Data Corp.

Yet Wall Street isn't exactly crowing about it. Inter@ctive Week's @Net Index was up just 8 to 539 a little bit after 1 p.m. ET. And the muted response makes sense.

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IDC polled 50 e-tailers last week and found 29 percent see sales ahead of holiday expectations, 55 percent on target, and 16 percent were running below. Being a general survey as opposed to a detailed study, no specific e-tailer's response was cited, making it impossible to know who's ahead of forecasts and who isn't.

And that could be why Wall Street isn't particularly cheered by today's report. You certainly can't put too much stock in a poll of just 50 companies; IDC notes that a more in-depth study normally involves five to 20 times that number of participants.

Yet if the same percentages hold true for even 1,000 retailers, reaction to the report might go from merely tepid to real discouragement. The last thing Internet investors want to hear is that seven out of 10 retailers are having merely average or outright bad holiday seasons.

For Wall Street, that means the glass is less than a third full. You have to beat the forecast to make the Street happy.

Expecting most e-tailers to exceed their own targets is hardly realistic, assuming that the companies themselves set realistic goals and not overly cautious ones. Unfortunately, realism is a nearly extinct notion among shareholders of Internet companies these days.

Admittedly, Wall Street now rewards only companies that top analyst forecasts, not those that meet them. But that's especially true for online retailers.

Whether Amazon.com (Nasdaq: AMZN) at 98 a share, eToys (Nasdaq: ETYS) at 37, Ubid (Nasdaq: UBID) at 34, Barnesandnoble.com (Nasdaq: BNBN) at 16, Egghead.com (Nasdaq: EGGS) at 15, or even the likes of Cybershop (Nasdaq: CYSP) at just 8 -- you have to say they're trading at high premiums, because they're all losing money. One stock may be valued less than another, but as a sector, it's priced at a level that demands extraordinary performance from its members.

Unlike more established companies, e-tailers simply can't afford a bad or "merely" in-line quarter. If Amazon doesn't exceed the estimates in its next quarterly report, AMZN shares will feel reams of pain.

When your business plan calls for losing bushels of money in order to build sales, you can't just meet estimates. That's what mature companies do. Successful young companies surpass them.

IDC already sees the cloud above the silver lining. "Some vendor results indicate an impending shake-out, especially among smaller or less well-backed .coms that are not realizing the growth they need to fund Web development budgets," notes IDC.

The survey also noted some customer complaints, but that's to be expected and will be tolerated from such a young medium. Besides, whether it's long lines and rude cashiers or servers crashing and website interfaces not working, customer service usually goes into the toilet during holiday season for all retailers. Despite what online utopians believe, holiday shopping is still holiday shopping -- it'll never be a completely pleasant experience.

"We are seeing a more knowledgeable customer ... more demanding, and even obnoxious at times," one anonymous e-tailer is quoted as saying.

They may be buying online, but they're still real world shoppers at heart.

Other issues:

  • Micron Electronics
  • (Nasdaq: MUEI) The No. 3 direct sales PC company is scheduled to report earnings today after the closing bell. First Call consensus predicts a profit of 14 cents per share for the fiscal first quarter ended November. Of particular interest: how's the new subscription-based model working?

  • Red Hat
  • (Nasdaq: RHAT) I've said before that Red Hat epitomizes a New World of investment thinking. The fact that it can split the stock while missing estimates merely underscores the notion. 22GO>