Consumers Continue Shopping Online - Analyst Blog

The recession, job cuts and poorer purchasing power notwithstanding, U.S. consumers have retained their appetite for spending. Thus says latest data from ComScore, which has disclosed online spending estimates for the first phase of the 2010 holiday season.

Although the heaviest days were Thanksgiving Day through Cyber Monday, online spending in the first 33 days since November 2 jumped 12% from last year. Cyber Monday spending reached new heights, crossing the $1 billion mark for the first time.

Specifically, Thanksgiving Day sales were up 28% from 2009, Black Friday sales up 9%, Cyber Monday sales up 16% and sales in the following week through December 3 up 9%.

We are inclined to think that the data is deceptive, since it was no doubt helped by the continuing shift from offline purchases to online purchases. So it may not be indicative of increased spending on the part of consumers. Moreover, consumers are displaying unprecedented cost-consciousness, which is not evident from the overall growth numbers.

But retailers across the board agree that consumers are more likely to buy any item after reading consumer reviews and in case there was a discount on offer. Customer service is another important area. We attribute this as the main reason for the success the large retailers, such as Amazon.com (AMZN), eBay.com (EBAY), Netflix Inc. (NFLX) and the like are having.

Big companies are naturally in a better position to offer discounts, consumer reviews and better customer service. This is the reason that the top 25 online retailers saw their market share expand to around 68%, while that of the small to medium-sized players shrunk to around 32%.

The Zacks Rank for Amazon is #3 (short-term Hold recommendation), despite the positive trends, given the company's recent investments in infrastruatcure, which are likely to keep the lid on earnings growth for a few quarters. However, eBay and Netflix are ranked #2 (short-term Buy recommendation), given their improving outlooks.

 
AMAZON.COM INC (AMZN): Free Stock Analysis Report
 
EBAY INC (EBAY): Free Stock Analysis Report
 
NETFLIX INC (NFLX): Free Stock Analysis Report
 
Zacks Investment Research