Internet companies may have a splendid edge over their earthbound competitors, but investors are realizing that they have expenses just the same.
Shares of eBay Inc. fell nearly 9 percent today, one day after the company warned that its earnings in the near future will be limited by the need to spend more on its computer infrastructure. The popular auction site went down for 22 hours in June and then for a second, shorter, period in August.
Meanwhile the biggest online retailer, Amazon.com Inc., announced third-quarter results today that were a bit better than analysts had been predicting. Before merger and other special charges, the company reported a loss of $86 million, or 26 cents a share. That's up sharply from a $24 million loss, or 8 cents a share, in the comparable period last year, but better than the 28-cents-a-share-loss consensus estimate reported by First Call/Thomson Financial.
Amazon.com tempered that relative good news, however, by saying its gross profit margins would fall in the all-important fourth quarter. Among the reasons: extra help for the upcoming holidays, higher marketing costs and charges associated with new services.
"Amazon is once again dramatically increasing the loss forecasts, and I suspect we will see tomorrow that investors are growing weary of that same old song," commented CS First Boston analyst Lise Buyer.
Amazon's earnings were announced after the market closed. During regular trading it fell $5.31 1/4 a share, to $75.93 3/4. In after-hours trading it dropped as low as $72.75.
As for eBay, it fell $13.31 1/4 a share, to $138.68 3/4. The auction site spent $8.8 million in the third quarter on improving its computer system and told analysts it will have to spend more. This worried at least one investment house, Deutsche Banc Alex. Brown, which downgraded the stock today. Other analysts, however, reaffirmed their buy ratings.
Both eBay and Amazon have had no trouble adding new customers. In fact, customers are increasing faster than revenue. At the auction site, for instance, third-quarter revenue was $58.5 million, not quite triple the year-earlier $21.7 million. But the number of registered users increased more than fivefold, to 7.7 million from 1.3 million.
At Amazon, sales were up almost 132 percent, to $356 million from $154 million. But the number of customer accounts rose to 13.1 million from 4.5 million, a jump of 191 percent. Some analysts have wondered if the novelty of online buying eventually wears off for customers.