Internet Earnings Preview

Google, Yahoo! and eBay all report earnings this week, followed by Amazon next week. Competition among the Internet Titans has been heating up dramatically over the last year as they increasingly enter into each others core business (search, ecommerce, content & advertising) and fight for market share and global expansion. The fundamental drivers of growth in internet sector remain strong, as consumers increasingly use the web for communication, research, entertainment, and shopping. Investors will be closely watching the financial reports to see which companies are best able to take advantage of the increased time spent on the Web.

"Strong secular growth and fundamental trends remain intact for the Internet sector, despite some company-specific controversies," Goldman Sachs' Anthony Noto wrote in a recent note to clients.

According to comScore Networks, total U.S. Internet traffic rose 4% in June from a year earlier. Media and retail sites grew considerably faster, rising 15% and 8%, respectively, according to an analysis by Merrill Lynch. Web-page views on Google reached 10 billion in June, up 71% from the same month last year, while Yahoo's page views reached 40 billion, up 23% from last year, according to comScore. Traffic to e-commerce sites was healthy as well, with eBay's June user numbers rising 21% to 78 million and Amazon's up 22% to 49 million.

First up is Yahoo! who reports on Tuesday. Yahoo! is in the best position of all the Internet Titans to take advantage of the resurgent growth in brand & display advertising, and should report towards the top end of their revenue guidance of $1,080-$1,160 billion. Wall Street is looking for the company to report earnings of 11 cents a share, down from 13 cents a year earlier, on $1.14 billion in revenue.

During Q2, Yahoo! continued to focus on social media with offerings such as Yahoo! Answers and Yahoo 360! that rely heavily on user generated content. They also updated their homepage and formed a broad strategic partnership with eBay that includes advertising, online payments, Web searching and a co-branded toolbar. Yahoo! also announced that it will begin rolling out a completely redesigned search advertising platform (code name "Panama") in the third quarter to help businesses more easily connect to Yahoo!'s vast audience.

eBay reports on Wednesday and investors are looking for some good news from what has proven to be a very difficult year for the Internet auctioneer. Stock is down 30% this year and eBay recently experienced a series of executive departures, including PayPal President Jeff Jordan.

Analysts are expecting earnings of 24 cents a share, up from 21 cents last year, when the company wasn't expensing stock options. Revenue is expected to be $1.41 billion, at the high end of eBay's guidance of $1.37 billion to $1.42 billion.