NEW YORK ( TheStreet) -- Internet retailers continue to be one of the few growth sectors within the industry. In June, the segment saw a 1% jump in sales, according to the Commerce Department, one of the strongest segments within the sector. And the number of overall U.S. unique visitors jumped 11% year-over-year, according to ComScore. Traffic in the second quarter increased by the same percentage. There was a snapback in online retail activity for items like computers, consumer electronics, home and garden, jewelry, music and videos, office supplies and sports and fitness. Expectations are high, however, leading into earnings results for the three big Internet stocks: Netflix ( NFLX), Amazon ( AMZN) and eBay ( EBAY). Here's what to expect for the second half of the year...
Netflix ( NFLX) has reported blowout results quarter after quarter, and this period shouldn't be an exception. Of course, the true test will be how many more subscribers Netflix was able to corral during the quarter. Netflix ended the first quarter with 14 million subscribers, projected an additional 700,000 to 1 million users by the end of June. This isn't out of the realm of possibility. With Blockbuster ( symbol) shuttering stores by the hundreds and Movie Gallery completing its liquidation The company is also expanding its channels of distribution, as it started streaming movies through Nintendo's Wii during the quarter. Applications for Apple's ( AAPL) iPad, iPhone and iPod Touch will also be available starting this summer. Netflix is also making its first foray outside the U.S., announcing on Monday that it will expand into Canada in the fall. During the quarter, Netflix also entered into a deal with Relativity Media that will allow it to stream movies during the "pay for TV" window. Such a move was previously not possible due to deals with cable networks like HBO, Showtime and Starz. Still, there are potential threats to Netflix's boisterous growth momentum. Coinstar's ( CSTR) Redbox kiosks continue to attract users with their $1 rental offerings. Reports also surfaced earlier in the week that Coinstar is planning on venturing into the streaming market. Bloomberg reported that Coinstar is looking to narrow the gap between the number of titles it offers (currently about 200) and Netflix's selection, which includes more than 100,000 titles by mail and 24,000 streaming movies and television shows. Hulu also announced last month that it will launch a paid subscription service to give users access to select current and past TV shows in high definition, including popular series like Glee, The Office and 30 Rock. While this launch wasn't unexpected, it is the first new significant competition for Netflix. Netflix's stock may not have much more room to grown, more than doubling so far this year. Shares closed on Tuesday at $120.39. The DVD rental company is scheduled to report its second-quarter earnings after the close on Wednesday, and analysts are forecasting earnings of 70 cents a share on revenue of $524 million. This compares with a profit of $32.4 million, or 54 cents a share, on revenue of $406 million, in the second quarter of 2009. Wedbush analyst Michael Pachter expects Netflix to raise the high-end of its 2010 guidance. The company currently foresees revenue between $2.11 to $2.16 billion and earnings in the range of $2.41 to $2.63 a share.
eBay ( EBAY) is set to report its second-quarter earnings after the close on Wednesday, and analysts are calling for a profit of 39 cents a share on revenue of $2.17 billion. The Internet retailer earned $327.3 million, or 25 cents a share, on revenue of $2.10 billion, in the second-quarter of 2009. eBay has been attempting to improve the shopper experience on its site by reducing upfront fees it charges sellers and enhancing its search results. But Citi analyst Mark Mahaney said he is uncertain how much of an impact these changes have made. It is also looking to become a go-to fashion destination, launching its fashion microsite, fashion.ebay.com, and a new fashion application for the iPhone. Mobile has been a significant focus, as eBay released several applications during the quarter that allow consumers to shop on eBay or transfer money through PayPal from their phones. In this vein, eBay purchased RedLaser during the quarter, which makes iPhone applications that allows users to scan barcodes in order to compare prices. Analysts expect eBay will provide its outlook for the third quarter and full year when it releases its results. "We believe that buyers will continue to migrate away from eBay -- taking sellers along with them -- until the overall convenience, trust and safety of the eBay marketplace has materially improved." Mahaney wrote in a note. Mahaney says he believe eBay's overall traffic continues to underperform other e-commerce sites like Amazon and Wal-Mart ( EBAY).
The increasing competition facing Amazon's ( AMZN) Kindle will be at the forefront of investors' minds when the company reports its second-quarter results on Thursday. The growing price war of e-readers, Apple's launch of its iPad, and the impending launch of a similar device by Google ( GOOG), are all increasing concerns. Apple announced last night that it shipped 3.27 milluion iPads since the product launched in April, which would surpass analysts' estimates for the Kindle. Susquehanna Financial analyst Marianne Wolk estimates an installed base of about 3 million for the Kindle. During the quarter, Barnes & Noble ( BKS) ignited a price war when it slashed the price of its Nook device. In turn, Amazon cut the price of its original Kindle by $70, to $189. It also lowered its price on its newer Kindle DX to $379 from $489. Amazon said earlier in the week that since the price cuts Kindle sales have more than tripled. E-books have also outpaced physical books for the first time. "Amazon.com customers now purchase more Kindle books than hardcover books -- astonishing when you consider that we've been selling hardcover books for 15 years, and Kindle books for 33 months," CEO Jeff Bezos said in a statement. Still, by 2011 Amazon's pricing and selection advantage of e-books could diminish significantly, Wolk said. Most publishers are under two-year contracts, and investors could see publishers negotiating with Amazon over the next several quarters. "As supply constraints ease, Apple iPad shipments could ramp and it could ship as many as 12 to 15 million iPads in 2010 -- a compelling base for publishers to consider," Wolk wrote in a note. Analysts are predicting second-quarter earnings of 55 cents a share on revenue of $6.55 billion. Mahaney expects Amazon to provide third-quarter guidance when it reports, but does not believe it will return to providing full-year outlook. -- Reported by Jeanine Poggi in New York. Follow TheStreet.com on Twitter and become a fan on Facebook.