Online Travel Leads the Way in Increased Market Share, with Online Electronics Vendors Not Too Far Behind

• On 10:26 am EDT, Wednesday October 21, 2009

67 WALL STREET, New York - October 21, 2009 - The Wall Street Transcript has just published its Online And Direct To Consumer Retailing Report offering a timely review of the sector to serious investors and industry executives. This 38-page feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Online Retailer Profit Margins Vs. Bricks-And-Mortar Retailers - Uptick In Internet Commerce - Secular Shift In Market Share To Internet Retailers - Post-Crunch Consumer Confidence - Growing Market Share For Online Travel Agents - Possible Consolidation Of HSN, Inc. - Amazon As The "Wal-Mart Of The Internet" - Online Marketing Vs. In-Store Marketing - Maximized Markdowns - Online Traffic Conversion Rates - Social Networking To Drive Brand Awareness - Online Sales Holiday Outlook - E-Commerce As A Path To International Expansion

Companies include: Abercrombie & Fitch (ANF); Amazon (AMZN); Ann Taylor (ANN); Apple (AAPL); Ask.com (IACI); Bebe (BEBE); Best Buy (BBY); Bidz.com BIDZ); Dell (DELL); Dick's Sporting Goods (DKS); Expedia (EXPE); GSI Commerce (GSIC); GameStop (GME); Gap (GPS); General Motors (GM); Google (GOOG); HSN (HSNI): Hot Topic (HOTT); Interactive Corp. (IAC); Liberty Media Interactive (LINTA); LivePerson (LPSN); MercadoLibre (MELI); Move Inc. (MOVE); Orbitz (OWW); Pacific Sunwear (PSUN); Quiksilver (ZQK); Ralph Lauren (RL); ShopNBC/ValueVision (VVTV); South Korea's Gmarket (EBGMy); Sport Supply Group (RBI); Staples (SPLS); Starbucks (SBUX); Target (TGT); Timberland (TBL); Urban Outfitters (URBN); VeriSign (VRSN); Wal-Mart (WMT); WebMD (WBMD); eBay (EBAY); hhgregg (HGG); priceline.com (PCLN).

In the following brief excerpt from the 38-page report, Scott Kessler, a Senior Director at Standard & Poor's, and Michael Souers, a Standard & Poor's Analyst, discuss the outlook for the sector and for investors.

TWST: Which product categories are doing the best in online retail right now? And which of the companies that you follow are best positioned to take advantage of any growth that we might see?

Mr. Kessler: Mike is the person responsible for the Internet retail sub-industry within the consumer discretionary sector, so I'll let him talk about the big picture. I cover eBay (EBAY), and would note that categories the company has highlighted relatively recently include business and industrial, clothing, shoes and accessories, and electronics. For somewhat obvious reasons, eBay Motors has experienced some notable challenges.

TWST: So Michael what are your thoughts on that?

Mr. Souers: I think one of the categories that is showing the most growth and probably has the most potential for future growth is electronics. I think people are getting more and more comfortable buying electronics online. For instance, Amazon's (AMZN) electronics and other general merchandise category grew to 39% of sales in 2008, up significantly from previous years. Another category that's growing rapidly is apparel. It's fairly easy to return items purchased online, which makes buying apparel increasingly attractive. I think a problem that's precluded apparel from growing even faster is that sizes often vary based on brand or manufacturer. However, given the ease of returning items, I think this concern is abating. Multimedia products such as books, CDs and DVDs are obviously growing as well, but media has always been a product category that conforms well to online purchases. Therefore, growth is slower in this category than in most others due to past advances.

Mr. Kessler: I wanted to mention online travel. This category has shown some nice growth, especially outside the U.S., in Europe especially. I think a lot of this is attributable to two factors. One is that most people would say that Europe is a couple of years behind the U.S. in terms of adoption of the Internet in general and for travel transactions. Two is the increasing growth of the footprints of companies like Expedia (EXPE) and priceline.com (PCLN). In addition, consumers have been trying to find appealing values given the so-called Great Recession. I remember that during the largely challenging 2000 to 2003 period - and I covered the online travel area back then - one could argue that some of the worst-performing areas in terms of both financial performance and stock performance stocks were the Internet category, as well as the travel area. Interestingly, however, I could argue easily that the Internet travel area did actually quite well. And one of the reasons for that, one of the reasons why I think these companies have done pretty well over the last number of months, say year-to-date for example, is because it seems to me that a lot of the vendors - the airlines, the hoteliers, the car rental companies, the cruise operators - they are looking for these companies to increasingly distribute and sell their products, and take on the related risk. It appears that this phenomenon has manifested itself like it did at the beginning of this decade.

TWST: What are some of the most meaningful industry-specific metrics an investor who is interested in online retail should evaluate?

Mr. Souers: I think analysts and investors in the late 1990s got caught up in using some pretty crazy metrics to value Internet companies, such as number of eyeballs, etc. Personally, I tend to value the majority of the companies I cover by using discounted cash flow analysis. I also supplement that with metrics that I use across all of the retail companies I cover. After all, the goal for all of these companies is profitability and metrics, such as the number of visitors to your site mean little if you can't eventually turn a profit. So to answer your question, the metrics I use most often include P/E, P/E-to-growth, price-to-sales and EV-to-EBITDA. Obviously, you also touched upon the importance of having a strong balance sheet. Many online retailers have a lot of cash and little to no debt, and I think that level of financial flexibility is quite advantageous.

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 38-page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .

The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.

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