Updated from July 21

Long-term Amazon ( AMZN) shareholders may well be holding their breath awaiting the company's earnings report after the close Thursday, especially after seeing the market's reaction to eBay's ( EBAY) report.

No matter how good a report Amazon issues, the company's stock is likely to take a beating, if recent trends are any indication. And if the company has bad news for the market, it could get ugly. Perhaps in anticipation, Amazon shares were recently down 69 cents, or 1.5%, to $44.07.

In fact, nimble traders might think about shorting Amazon going into the earnings call, said Scott Rothbort, president of LakeView Asset Management and a contributor to TheStreet.com's sister site Street Insight.

"Maybe they do well, but the market doesn't receive it well," Rothbort said. "It's been a very, very difficult market."

eBay was only the latest company to find that out.

Although the online auction giant beat the Street's earnings estimates by 3 cents a share, investors sold off its stock after its report on Wednesday, presumably in reaction to the company's guidance, which was below analysts' expectations. The company's shares were recently down 70 cents, or 0.9%, to $75.90 after trading as low as $71.45 earlier in the session.

Last week, it was Netflix ( NFLX) that got taken to task. The online movie rental company has seen its share price fall more than 38% since it posted a mixed earnings report on Thursday. Earlier in the month, investors took their frustrations out on Yahoo!. Shares in the online media ( YHOO) have dropped nearly 15% since it issued disappointing guidance with its quarterly update on July 7.

Even before eBay's report late Wednesday, investors were expecting more of the same for it and Amazon.

"I think they're going to get beat up no matter what they report," Susan Fulton, president of investment firm Fulton Breakefield Broenniman, said earlier this week. Fulton, whose fund is long both Amazon and eBay, added: "The Street seems to have decided. This month they hate Net stocks."

Indeed, TheStreet.com's Internet index is down more than 12% since June 30. In recent trading Thursday, the index was off 2%.

Internet investors may have only themselves to blame for the selloff: Despite recent weakness, eBay shares are up 14% year to date and a whopping 191% since their nadir in October 2002. Though Amazon's shares have fallen 16% this year, they're still up nearly 165% since the fall of 2002.

Those spectacular gains pushed both companies' price-to-earnings ratios to precarious levels. Even after its recent selloff, eBay is still trading at about 66 times its projected 2004 earnings based on generally accepted accounting principles; that valuation doesn't include stock option expenses, which would slash eBay's earnings dramatically. Amazon is trading at about 46 times projected GAAP earnings -- more reasonable than eBay, but still high by traditional standards.

Even factoring in both companies' healthy projected growth rates, they still look expensive, trading at P/E-to-growth ratios of nearly 1.8 for eBay and 1.4 for Amazon.

But those pricey multiples have come at a time that earnings expectations may be getting ahead of Internet companies' ability to meet them.

Amazon, for instance, has predicted that it will post per-share earnings this year ranging from 84 cents to $1.03 on sales of between $6.45 billion and $6.81 billion. But analysts expect the online retailer to hit the high point of its range for both earnings and revenue.

For the second quarter, the Street predicts that Amazon will post profits of 19 cents a share -- excluding charges -- on $1.43 billion in sales. In April, Amazon forecast that it would earn approximately 15 cents to 20 cents a share on $1.34 billion to $1.44 billion in sales.

Similarly high expectations from eBay helped to sink its stock on Thursday. The company raised its full-year earnings guidance by four cents a share to $1.10. But considering that the company beat its own second-quarter outlook by four pennies a share, it didn't really raise guidance at all. And its updated estimate was still below the pre-call consensus forecast of $1.11 a share in earnings.

Investors seem relatively confident that Amazon, like eBay, will meet second-quarter expectations. But there is considerable concern that, as with eBay, Netflix and Yahoo!, Amazon won't beat expectations or won't raise guidance by a sufficiently high amount. As of June 7, speculators were shorting nearly 11% of Amazon's float, according to Yahoo! Finance.

"You've got to be crazy to be long term in these names," said one fund manager, who requested anonymity and is short both Amazon and eBay. "When you are priced for perfection, any imperfection is what people focus on."

Indeed, current and future earnings aren't the only concern. With so much of the companies' value built on expectations of growth three, four or five years down the line, count on investors and analysts to scrutinize their reports for any troubling news on overseas growth rates, customer-acquisition rates or sales of products in new categories.

E-commerce investors also should be wary of how the broader market has been performing of late. The market has been punishing a slew of stocks, not just Internet ones, after their earnings reports, said Rothbort.

"This is a market right now that is acting in a very irrational way," Rothbort said. "It's not rewarding good performance."

That may be troubling for Amazon, because Wall Street has such high expectations for its upcoming report.

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