Amazon Gets Set for Holiday Cheer

With "Black Friday" and "Cyber Monday" looming, retail giants Amazon ( AMZN) and eBay ( EBAY) are about to burst from the blocks in search of holiday dollars.

Cyber Monday, the first Monday after Thanksgiving, has traditionally marked the start of the online holiday shopping period, the most important time of the year for Amazon and eBay. Amazon, which launched its Black Friday deals page earlier this week, is expected to set the pace.

"Amazon has doing tremendously well all year and continues to show strong double-digit growth," Patti Freeman-Evans, research director at Forrester, told TheStreet. "We expect to continue to see them do well."

During the third quarter, even as U.S. consumers emerged bleary-eyed from the recession, Amazon still reported sales of $5.45 billion, an increase of 28% on the same period in 2008.

Over the last few years the Seattle-based firm has earned a reputation for customer service, efficient shipping and a highly navigable Web site, factors that should help lure users from traditional retailers this holiday season.

The National Retail Federation (NRF), for example, has forecast a 1% year-over-year decline in overall sales this holiday season, as ongoing uncertainty about job security and housing takes its toll on consumer confidence.

The Internet, however, will be retail's shining light. In another survey, the NRF found that almost half of online retailers expect their holiday sales to increase at 15% over last year, with a third predicting up to 14% growth. Tellingly, just one in five online retailers expects sales to flatten or decline.

Forrester forecasts online retail sales of $44.7 billion between November and December, an 8% increase on the same period last year. This figure includes Amazon's sales, but not consumer-to-consumer businesses such as eBay, which recently gave a disappointing holiday forecast.

Amazon is nonetheless feeling the analyst love. Merrill/BofA, for example, recently increased its Amazon numbers through 2011, citing a continued shift toward online shopping this holiday season. The analyst firm gave the retailer a buy rating and raised the company's price target to $140.

"I think this holiday season is going to be huge for Amazon," Candace Corlett, president of WSL Strategic Retail told TheStreet, pointing to her firm's quarterly consumer surveys. "We're seeing more and more upper-middle income people and the affluent turning to the Internet for terrific deals."

The Internet retail behemoth was also upgraded to buy by Jefferies after its stellar third-quarter results and has been stealing share from brick-and-mortar retailers since the start of the recession.

In contrast, eBay has been experiencing pressure from traditional retailers like Wal-Mart ( WMT) and Sears ( SHLD) entering the online market place.

The company expects fourth-quarter sales between $2.2 billion and $2.3 billion, compared to Wall Street's forecast of $2.28 billion. Excluding items, eBay predicts earnings between 38 and 40 cents a share, at the low end of the 40 cents forecast by analysts.

Forrester analyst Freeman-Evans, however, still feels positive about eBay's holiday prospects.

"eBay always does well in the holidays because of the breadth of the offerings and because it's a great place for unique gifts," she said.

Perhaps reflecting the tight economy, however, eBay unveiled its PayPal holiday promotions at the end of October, which includes cash back, free shipping and savings from major retailers.

"The consumer is in the driver's seat this holiday season," explained Amanda Pires, senior director at PayPal, in a statement.

Amazon did not kick off its holiday promotions until this week, slashing prices on certain products, most notably a 37-inch LCD TV from LG, which was reduced from $1,399 to $649. Like eBay, however, Amazon is also coming under pressure from Wal-Mart, which has teamed up with Barnes & Noble ( BKS) to sell books online.

Books, of course, were the foundation of Amazon's online empire, although Jeff Bezos' firm can now count on a slew of other products, from electronics to housewares, not to mention the popular Kindle e-book reader.

"It's no secret that there has been this price war on books," said Corlett. " But Amazon has developed ranks of other product categories to offset books."

Amazon and eBay are both expected to focus heavily on the bottom line this fall, improving their margins as opposed to chasing sales. It seems certain, though, that Amazon is in line for plenty of holiday cheer.

With the Internet giant predicting fourth-quarter sales between $8.125 billion and $9.125 billion, a 21% to 36% increase on the prior year, it should be a very Merry Christmas in Seattle.

-- Reported by James Rogers in New York

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