When Amazon.com and eBay report quarterly results next week, investors will try to determine how well the e-commerce rivals? expensive fight for shoppers is paying off.
They will want to see if revenue is growing fast enough to justify the costs.
Amazon has been moving further from its traditional business selling physical goods online to take on tech rivals like Apple and Google in areas such as selling digital entertainment and storing data.
EBay is best known for its online auction website and PayPal, a payment system, but it has been making deals to compete more directly with Amazon, such as its $2 billion purchase in May of e-commerce services firm GSI Commerce. That deal is aimed at getting more retailers to sell to their customers using eBay.
Amazon?s growth ? its sales nearly doubled between 2008 and 2010 ? has come at a cost: shrinking operating margin. Amazon has made no bones about it, warning investors to expect pressure on its profitability for some time yet.
The question for investors will be how much pressure. ?They (Amazon) are investing for the future and it?s just a matter of how long this investment process will take,? said Michael Koskuba, a senior portfolio manager at Victory Capital Management, which has owned Amazon stock since March 2009.
Amazon shares plunged 9% on January 27 when it reported a lower operating margin over the holiday quarter.
Amazon has been challenging rivals from Apple to Barnes & Noble and many others with low prices on e-books, cheap shipping and offering customers the ability to store music on its servers in a ?music locker.?
A stellar sales performance by Amazon would mollify investors worried about the impact on profits, but a so-so performance could send shares down. ?If Amazon has a strong revenue quarter, people will be more willing to overlook margins,? said Cowen & Co analyst Jim Friedland.