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More troubles ahead for online retail sector as Bernstein Research downgrades eBay and Amazon to "market perform" from "outperform”, citing greater risks of underperforming by these two companies due to the weak economy. According to analyst Jeffrey Lindsay:

"The vast majority of goods sold by Amazon are discretionary purchases," analyst Lindsay said, adding that while there might be an improvement towards the end of 2009, the company will be limited to 11 percent earnings growth and 12 percent revenue growth during 2009.

Worsening economic conditions overseas, especially in the EuropeanUnion, and competition from offline retailers who have succeeded in avoiding heavy discounts during the holiday season further challenge the online retailer, the analyst said.

Online auctioneer eBay faces added problems like slower-than-expected improvements in active user metrics, a reduced outlook for operating margins and the weakness in the auto market, Lindsay said.

The auctioneer is still the world’s largest online second-hand car dealership and the auto business accounts for about 22 percent of the company’s gross global merchandise value, the analyst said.

Investors are also wary of eBay’s acquisition of Bill Me Later for which the company had borrowed $1 billion, Lindsay added.