Online Travel Retailers Next Internet Sector To Benefit From Rebound In Consumer Spending: Veteran Equity Analyst Shares His Picks And Pans

• On 12:05 am EDT, Wednesday October 28, 2009

67 WALL STREET, New York - October 27, 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 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 just one of the in depth interviews in the 38 page report, an industry veteran analyst discusses the outlook for the sector and for investors.

Frederick Moran serves as a Managing Director who heads the Internet, media and communications stock research team for The Benchmark Company. His research focuses primarily on Internet, entertainment and outdoor advertising stocks. Previously, Mr. Moran headed the Internet, media and communications stock research teams at Stanford Group Company and Jefferies & Co. He has also worked in various capacities for ING Barings, Furman Selz, Solomon Brothers and Donaldson, Lufkin & Jenrette, and Drexel Burnham Lambert. Mr. Moran holds a B.S. in economics with a concentration in finance from The Wharton School, University of Pennsylvania, and he is a graduate of the Fieldston School.

TWST: Are there any online retailers that you think might not survive this recession?

Mr. Moran: In terms of the publicly traded companies, it looks like they will all survive the recession simply because these companies were all well managed enough not to get heavily indebted or in any financial trouble. Clearly, most of them have seen some pressure on their financials in terms of declining revenues and the negative impact that has on cash flows and profits. But none of them have a burdensome debt level that would cause them to go bankrupt or anything like that. The one company we cover that's had the toughest financials from the standpoint of declines has been Bidz.com (BIDZ). Bidz is a small-cap auctioneer of jewelry on the Web. And because they are selling jewelry products at the lower end, which represent a completely discretionary purchase which the consumer can and did hold off on, they have as a result seen a 50% falloff in their revenue and pressure on their ability to produce any cash flow or profits. But with no debt, even if they are marginally profitable, they are still financially healthy enough to maintain a publicly traded stock, and to weather the economic storm and come out the other end. The bigger ones I think are not only going to weather the storm, some of them are going to come out of it fairly nicely positioned to see a spring-back in the growth rates, and that includes every company from Amazon to eBay to GSI Commerce and the online travel companies where we cover Expedia (EXPE), Orbitz (OWW) and Priceline (PCLN).

TWST: Which sub-sectors within online retail do you think have the best potential for long-term growth?

Mr. Moran: I think most of the companies we mentioned have great potential for long-term growth. Amazon, eBay, Expedia, GSI Commerce, Orbitz, Priceline, they all are well positioned from a competitive standpoint to continue to steal share from their historical bricks-and-mortar competitors. They've all proven an ability to withstand the downturn and maintain at least decent financials, and their businesses are obviously tied to the U.S. consumer. So if the U.S. consumer comes back, their businesses should benefit. The sub-sector that we have been touting as the most interesting this year is the online travel sector, Expedia, Orbitz and Priceline. What's happened for them is not only have they continued to gain share from traditional travel agents, but they've eliminated booking fees and run a number of promotions that have allowed them to grab incremental share from their suppliers, meaning the Web sites of the hotels themselves and the Web sites for the airlines themselves. Prior to the elimination of booking fees, if you went on Expedia's site to book an airline ticket and then went over to one of the airline sites, you could book the same ticket without a booking fee through the airline site itself. Now with the elimination of booking fees, you don't have to slip over to the airlines site and book through them, you just stay with Expedia, and you know you're getting the best price available. If you go and check it, you will certainly see that that's confirmed. So what we've seen is that the market share shift that was already occurring has accelerated. These online travel agents are gaining share at a more vigorous pace, and it's stimulating an increase in the amount of transactions that are booked through the online travel agents. Priceline has been the biggest beneficiary. Here in the U.S. they gained 3 million new unique visitors to their Web site over the summer, and a team that came at the expense of the booking sites of the hotels themselves. So as the consumer looks to get discounts on the Web and realizes that the best values are more readily available through the online travel agents as opposed to the hotel or airline sites directly, there is a more material and accelerated shift taking place that is benefiting these online travel agents and more than offsetting the impact of the travel slump overall.

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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