Online Sales Rise, but E-Commerce Stocks Soar

Online sales are surging again this holiday season, in contrast to results at the nation's biggest off-line retailers. But the growth may not be enough to support e-commerce companies' sky-high valuations.

The latest data indicate that e-commerce sales are up 20% to 35% this holiday season. While impressive, that amount falls short of some of the more optimistic predictions from analysts. Forrester Research, for instance, projected that online sales this holiday season would grow by 42% vs. last year. While indicating healthy sales growth, none of the major e-commerce estimates for this year have come close to recording 42% growth.

The sales increase also trails far behind the dramatic gains that many e-commerce stocks have posted in the last year. Shares of Amazon.com (AMZN) have risen 167% thus far in 2003, despite falling more than 19% since hitting a 52-week high above $61 on Oct. 21.

Amazon and other e-commerce companies are "priced for perfection," said Ken Broad, a portfolio manager at Transamerica Investment Management. To the extent that sales don't meet expectations, "it could be the most material catalyst in the near term for these stocks not doing well." (Broad currently has no positions in e-commerce retailers.)

Unlike their off-line retail rivals, many of which release monthly sales results, the online players tend to release their revenue figures only once a quarter. Furthermore, research companies that track e-commerce sales don't release sales results for individual retailers. So any intraquarter projections of their sales or earnings are preliminary and subject to revision.

Initial indications are that holiday e-commerce sales are growing impressively this year. Shopping comparison and research site BizRate.com estimates that from the Monday before Thanksgiving through last Sunday, shoppers spent $6.2 billion at U.S. online stores. That amount, which excludes auction and travel sales, was up 20% from the same period last year.