Valuation of the E-Commerce and Internet Services Industry

The e-commerce and Internet services industry includes companies that sell goods or services online, including information products and information retrieval services. The industry also covers networking and other support services for companies that operate primarily on the Internet.

Industry Overview

Consumer online spending has become part of our society. eBay is posting record profits and Amazon.com is profitable for the first time in its eight-year history. But e-commerce growth rates in the United States are starting to slow. Major e-commerce sellers such as eBay currently expect to make greater profits outside the US this year.

Spending on information technologies rose in 2003 and early 2004 but declined in the second quarter of this year. As a result, many companies in the support services segment of the e-commerce industry have fallen short of their earning projections. A possible reason for the shortfall is that corporate buyers of Internet services have become more cautious, extending the time required for dealing with them. If this is the case, contract signings already in the works may be extended into the following quarters, causing an increase in sales for the second half of the year.

The fourth quarter is typically a strong one for the industry. Consumers increase spending for the winter holidays and corporations attempt to resolve service issues before the end of the fiscal year.

The selling of goods and services to individual consumers online, once a limited industry, has grown considerably since its formation. Internet savvy consumers are now purchasing big-ticket items online as well as smaller products. The online buyer's market for cars, for example, is a rapidly growing industry segment. About 20 percent of eBay clients now shop for autos and auto parts. eBay sold its millionth car in 2004. Other websites have developed to support online vehicle shoppers. Kelleybluebook.com provides data on prices for used cars by year, make and model, while sites like capitaloneautofinance.com and householdautofinance.com provide data on auto loans.