Online Sales Showing Sustained Momentum throughout Q4

Jefferies said its several checks suggest that online sales rose a solid 15 percent year-over-year in the Nov. 1 to Dec. 18 holiday season period, an acceleration from the pace of growth in the first nine months of the year.

This is in line with our expectations and attests to broad strength in e-commerce, boding well for ad/ecom names, particularly eBay, Google Inc. and Amazon.com. We favor Google and eBay currently, said Youssef Squali, an analyst at Jefferies.

According to comScore, online sales were up 15 percent this holiday season (Nov. 1 - Dec. 18) with the last week seeing a 14 percent year-over-year growth in sales. Green Monday (Dec. 12) was particularly strong, with sales up 19 percent year-over-year to $1.13 billion as consumers rushed to place their orders in time for delivery by Christmas.

For the 2011 holiday season to-date, ten individual days have surpassed $1 billion in online retail sales versus last year. The online dollar spending is expected to now moderate as shoppers turn to physical stores for last-minute purchases, Squali explained.

Same store sales on eBay continued to see a pick-up in December, rising 21.3 percent year-over-year between Dec. 1 to Dec. 15, versus 20.4 percent year-over-year during Dec. 1 to Dec. 7, and 18 percent for all of November, according to Channel Advisor, which attributes the lift to in-demand holiday gift items being sold out at retail stores.

Squali noted that the December trend for eBay also reflects easier comps in December 2010, when same-store sales for eBay declined 1.7 percent. eBay sales trend looks better than expected, with same-store sales showing an improving trend quarter-to-date and tracking slightly above the 16.7 percent recorded in the third quarter.

While Squali does not view data from Channel Advisor on an absolute basis, directionally the correlation has proven good. Thus, he views his current forecast for U.S. Gross Merchandise Value (up 8.5 percent year-over-year versus up 14 percent in the third quarter) as conservative.

Third-party sellers on Amazon.com are seeing strong same-store sales growth in December as well, with sales up 52.8 percent year-over-year between Dec. 1 to Dec. 15 versus 49.6 percent during Thanksgiving-Cyber Monday and faster than 35.9 percent in December 2010.

The up-tick in same-store sales for third-party merchants on Amazon could point to the company running out of its owned-inventory; and therefore Squali believes that the trend should be sustainable for the remainder of the season, all else equal.

Squali said Amazon core likely seeing robust sales growth as the company tends to sell more owned-inventory during the holidays (which carries lower margins). As a result, the share of third party sales on Amazon has historically declined 400 to 500 basis points range fourth quarter/third quarter.

Same-store sales data from Channel Advisor shows that third party sales on Amazon averaged 65 percent growth year-over-year sequential versus 72 percent in the third quarter.

Visitation to Amazon sites remains robust with comScore data showing that unique visitors to the company's U.S. sites are up 34 percent year-over-year sequential versus 29 percent year-over-year in the third quarter. Our caution on Amazon revolves around operating margins this quarter, which at the mid-point of guidance implies a near zero rate, said Squali.