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SAN FRANCISCO (Reuters) - Amazon.com Inc may outperform other Web retailers this holiday season as its scale, flexibility and popularity help it stand out in an online price war.
As online retailers vie to outdo each other and their brick-and-mortar rivals in offering deals that consumers will be hard pressed to pass up on, analysts said Amazon's market share could grow. A survey showed the online retailer was "the clear leader" in Web commerce.
While Amazon shares dropped 5.22 percent on Monday, that was better than the 8.95 percent decline in the Standard & Poor's 500 index and 6.85 percent drop in Internet rival eBay Inc. Some smaller online retailers, such as Overstock.com Inc and Blue Nile Inc, suffered bigger falls of 15.35 percent and 12.74 percent, respectively.
The declines were a bad omen, particularly on the first Monday after the holiday shopping season officially began last Friday.
Web traffic to online shopping sites is supposed to rise on so-called "Cyber Monday" as consumers log on from work to find better deals than they saw on visits to physical stores. However, some investors feared deep discounts from traditional retailers may have stolen the thunder from online rivals.
Amazon, though, is seen by many as the surer bet online.
A J.P. Morgan Internet survey showed Amazon to be the "clear leader in U.S. eCommerce," with nearly half of the respondents planning to shop at Amazon, and 59 percent of users with incomes over $100,000 saying they shopped there. No other site captured more than 33 percent.
"It seems they (Amazon) have done so much better than everyone else, or better than the market seems to be indicating," said Pacific Crest analyst Steve Weinstein.
Stifel Nicolaus analyst Scott Devitt wrote in a note that he expects "Amazon will be one of the best performers this holiday season and over many future holiday seasons."
In a season rife with online promotions, ranging from Wal-Mart Stores Inc to Best Buy Co Inc, Amazon's advantage is flexibility, which serves it well when rivals lower prices, Devitt wrote.
He noted that a national electronics retailer which he didn't specify, advertised a plasma television on sale last week for $949, together with a $50 gift card. Within three days, Amazon's best price of $974 had dropped to $899 with free delivery.
At the same time, Devitt lowered estimates for eBay, Overstock.com, and diamonds and jewelry online retailer Blue Nile.
Shares of Amazon are down 56 percent since January versus a 63 percent decline for eBay.
While both Amazon and eBay have warned of a challenging holiday season, Wall Street is more sceptical of eBay's earnings power.
Bank of America's Brian J Pitz estimates Amazon's sales will rise 6 percent this quarter, but drop 10 percent at eBay.
EBay has been reducing listing fees and increasing fraud protection to stimulate its main auction business, whose growth has slowed in recent years.
"I've just been shocked by the amount of discounts offered on eBay," said analyst Weinstein. "It's pretty substantial discounting and couponing which in general is not coming from a position of strength. It doesn't suggest that business is particularly good or will be particularly profitable."
But while slowing growth exacerbated by the recession might hit eBay's holiday sales at its main marketplace division, its online payment service PayPal could gain from a credit crunch.
Analysts have warned that as credit card companies raise rates and lower available credit limits, online retailers could be hurt since they do not accept cash payments.
Millions of retailers -- including 35 out of the top 100 U.S. retailers -- offer PayPal, which can deduct funds from a user's bank account. The company has cash-back deals through retailers like Toys 'R Us and Blockbuster Inc.
"We certainly have heard from consumers this holiday season they feel a little more in control of their spending if they use their bank account," said PayPal spokeswoman Amanda Pires.
On Black Friday, the day after Thanksgiving, PayPal saw a 26 percent spike in sales compared with the same day in 2007.
Cyber Monday activity this year was also expected to be somewhat muted because worried retailers were already advertising deep discounts even before Thanksgiving.
"One of the implications of the heavy discounting at physical retail is that bargain hunters will not be as enticed to go to bargains on the Net," said Soleil-Media Metrics analyst Laura Martin.
Some surveys have indicated that eCommerce spending could decline for the first time ever in the fourth quarter. MasterCard Advisors found that Internet sales fell 7.5 percent during the first two weeks of November.
Tracking firm comScore predicts holiday sales will be flat this year, compared with 19 percent growth in 2007.
Reporting by Alexandria Sage, additional reporting by Lisa Baertlein; editing by Richard Chang