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Internet Stocks to Watch on Wednesday

Internet retailers Amazon, Netflix and eBay will report first-quarter earnings on Wednesday, and could set the tone for the rest of the industry.



) -- Internet retailers


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are all scheduled to report first-quarter earnings on Wednesday and, in doing so, should set the tone for the rest of the online retail market.

According to Coremetics, a marketing optimization firm, online retail sales shot up 10% in March compared with February, but were down 9.5% in the first quarter from the fourth-quarter holiday season.

"The online sector as a whole delivered an encouraging performance over the course of the first quarter," John Squirem, chief strategy officer at Coremetrics, said in a statement. "Though overall sales were down slightly for the quarter, the sector posted strong gains in March."

Average order value continues to trend upward, reflecting improving consumer confidence. Department stores and sports gear retailers were the standouts of the quarter.


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, the behemoth Internet retailer, is expected to outperform its first quarter of 2009, in which it posted 24% profit growth.

Analysts are calling for earnings of 61 cents a share, on revenue of $6.86 billion. In the year-ago period, Amazon earned 41 cents a share on $4.89 billion in revenue.

The first quarter marks Amazon's first full quarter including profit from online shoe and apparel store Zappos, which it acquired in November 2009. In the fourth quarter, Zappos contributed $200 million to Amazon's revenue.

Perhaps the greatest focus will be on whatever color the company provides on sales of its Kindle e-reader. It's unlikely, however, that Amazon will reveal much. The company has been notoriously tight-lipped about the device, only saying it has sold "millions" of the devices.

The interest in the performance Kindle is especially heightened due to the recent launch of Apple's iPad, which investors fear will steal market share away from the e-reader.



The big question for


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is will it be able to live up to its grandiose prediction of adding between 1.2 million and 1.5 million customers during the first quarter?

If the DVD-by-mail company reaches this lofty goal, it will be the biggest jump in subscribers in its history.

Netflix has been able to succeed on the failures of rivals like


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. It is also poised to benefit from the recent launch of its


Wii platform, which could attract even more new users, and its broadening distribution channels on digital devices, including the iPad.

There are, however, some concerns for the company, including rising postal costs and the possible elimination of Saturday mail delivery, as well as the growing popularity of DVD kiosks from


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Recently the company also announced agreements with several movie studios that will result in Netflix having to wait 28 days before it can provide new releases to customers.

For the first quarter, analysts expect Netflix to earn 54 cents a share on revenue of $493 million. This compares with $22.4 million, or 37 cents per share, on revenue of $394 million in the first quarter of 2009.

"We continue to view Netflix as one of a handful of core holdings in the mid/small cap Internet sector, which means we'd be more likely to buy on dips rather than sell on rallies," Citigroup analyst Mark Mahaney wrote in a note.

Netflix's target price was upped to $105 from $80 by Brigantine Advisors, who also reaffirmed its buy rating.

"Headed into the Q1 report, Netflix shares have been on a tear, reaching all-time highs, raising the bar on expectations for the quarter and beyond," analyst Steven Frankel wrote in a note. "While in the short run, the shares could come under pressure from profit taking, we believe the fundamentals are in place to drive numbers, and the stock, higher between now and the end of the year.




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is expected to report its third consecutive positive quarterly report on Wednesday, as it continues on its turnaround trajectory.

The auction Web site has made several initiatives to improve its marketplace, such as reducing or eliminating fees altogether for sellers and enhancing search results.

Still, the company has plenty of work to fix its core business, as its traffic continues to underperform e-commerce sites from Amazon and


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. "We believe that buyers will continue to migrate away from eBay -- taking sellers along with them -- until the overall convenience and trust and safety of the eBay marketplace has materially improved," Mahaney wrote.

Analysts are calling for a profit of 41 cents a share on revenue of $2.2 billion. For the first quarter last year, eBay earned $357.1 million, or 28 cents a share, on revenues of $2.02 billion.

"We believe eBay is unlikely to produce sustainable double-digit EPS growth ... unless it can grow its marketplace segment in-line with e-commerce," Mahaney wrote. "We believe this is a difficult task given: a declining U.S. user base, an auction format anchor, a still sub-par user experience, and increased high-end, low-end competition from Amazon, multi-channel retailers, Craigslist, etc."

Investors will also be watching eBay for second-quarter and full-year guidance.

-- Reported by Jeanine Poggi in New York.

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