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UPDATE 1-Amazon, eBay at risk of underperforming - Bernstein
Dec 19 (Reuters) - Bernstein Research downgraded eBay Inc (EBAY.O) and Amazon.com Inc (AMZN.O) to "market perform" from "outperform," saying there was a greater risk of the companies cutting their outlook and underperforming given the weak economy.
Rising unemployment, continued home foreclosures that further tighten consumer discretionary spending, coupled with lower-than-expected overseas growth and margin erosion will hurt both Amazon and eBay in 2009, analyst Jeffrey Lindsay said in a note to clients.
"The vast majority of goods sold by Amazon are discretionary purchases," analyst Lindsay said, adding that while there might be an improvement towards the end of 2009, the company will be limited to 11 percent earnings growth and 12 percent revenue growth during 2009.
Worsening economic conditions overseas, especially in the European Union, and competition from offline retailers who have succeeded in avoiding heavy discounts during the holiday season further challenge the online retailer, the analyst said.
Online auctioneer eBay faces added problems like slower-than-expected improvements in active user metrics, a reduced outlook for operating margins and the weakness in the auto market, Lindsay said.
The auctioneer is still the world's largest online second-hand car dealership and the auto business accounts for about 22 percent of the company's gross global merchandise value, the analyst said.
Investors are also wary of eBay's acquisition of Bill Me Later for which the company had borrowed $1 billion, Lindsay added.
Bernstein kept its price target of $50 for Amazon and $16 for eBay unchanged.
Shares of Amazon had closed at $52.08 Thursday, while those of eBay had closed at $14.61 on Nasdaq.
(Reporting by Nivedita Bhattacharjee in Bangalore; Editing by Ratul Ray Chaudhuri)
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