Amazon.com, Inc. (
) acquired significant growth in the past year, and it has
consistently enjoyed very high customer satisfaction over the
long term. The company accounts for around 40% of unit sales.
Such high sales have driven Amazon's revenues and market price to
record highs. However, some factors that may have a detrimental
impact on the company's financial performance have become
Fee Hike for Sellers
Amazon has earned very high margins from third-party sales as the
company deducts fees on all the sales made on the site by third
party sellers. Amazon has justified the imposition of high fees
with the rising costs of operations. According to the company,
the costs of logistics are rising continuously. In order to
ensure a healthy balance between cost and revenue, it has become
imperative for Amazon to increase fees from time to time.
Another justification for the hike given by the company was the
prospective improvement in the service. According to its
representatives, Amazon has invested in some changes in its
logistics that will result in quicker shipping of products to the
Although the company's justifications are valid, there are some
factors related to fee hikes that may have a negative impact on
Amazon's revenue and profitability. A noticeable proportion of
Amazon's revenue is constituted by the fees imposed on third
party sellers, and with the hike in fees, the third party sellers
are willing to switch to a competing service. Some sellers have
expressed that the high cuts kept by Amazon leave the sellers
with a minimum margin, thereby rendering the whole relationship
pointless. Thus, the increase in fees could cause a decline in
Amazon's revenue instead of increasing it. Additionally, this
situation can also weaken Amazon's position against its
competitors such as eBay and Wal-Mart Stores, companies that are
providing similar services at significantly lower costs.
The growth in Amazon's business over the years can be seen in the
diversification in its business. From being a simple online store
to a successful player in the tablets market, Amazon has come a
long way. However, the company has also attracted stiff
competition. The main competitors of Amazon are: Apple Inc. (
) and eBay Inc. (
Apple Inc. is in direct competition with Amazon with regard to
its tablet business. Amazon's Kindle tablets have received
enormous global success; and this success has made Kindle the
competing product against Apple's iPad. Apple Inc. is still
facing a declining market performance since it reported financial
results that were lower than expected. Despite the declining
market performance, Apple Inc. holds a very strong financial
performance with the profit margin for fourth quarter 2012
standing at 23.99%, whereas Amazon's profit margin for the same
quarter was 0.67%.
EBay Inc. is a direct competitor of Amazon as an online store
business. With the recent hike in fees by Amazon, eBay is in a
favorable position as increasing numbers of third party sellers
are willing to switch to eBay in order to sell their products.
This may give eBay a stronger position against Amazon. The profit
margin of eBay for the fourth quarter 2012 was 18.81%,
significantly higher than that of Amazon.
Amazon's Market Performance
The market performance of Amazon has remained mostly positive in
past months. At the time of this edition, the shares of the
company are being traded within the range of $254.55 and $259.76.
The 52-week range of the share price of the company has been
between $182.88 and 284.72. The difference between the two
extremes suggests the extent of growth in share price over the
past months. The following chart represents the trend of the
company's share price over the past year.
The chart reflects that the average trend of Amazon's share price
has remained positive; however, some considerable fluctuations
can also be observed.
After the analysis of the relevant factors, in my opinion,
investors should hold their investments in the company. I believe
that the shares of Amazon are being traded at a very large
multiple which makes them a risky investment. Even a small
uncertainty can have a detrimental impact on the market
performance of Amazon. Also, the business risks the company faces
due to strengthening competition may also influence the market
performance in the foreseeable future.
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