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3 Reasons Amazon is Now Just Another Internet Stock
4/2/2013 2:00:00 PM
For years, Amazon (Nasdaq: AMZN) has been hailed as the king of the e-commerce hill.
After all, it pioneered the industry, gaining a competitivemarket share in nearly every field it's asserted itself. But as with any company, size and time seem to have caught up with Amazon, knocking it down a notch.
This pessimistic stance on the company is likely to ruffle feathers. But before dismissing the idea that Amazon is anything but bulletproof, consider three realities that would be deemedred flags for any other company.
1. Contempt for partners
The most affected sellers cried foul and threatened to take their business elsewhere. Often, customers complain about higher prices without changing their behavior. But these may not be idle threats -- alternatives exist. Competitor eBay (Nasdaq: EBAY) offers a comparable service, and lowered its listing fees shortly after Amazon's increase. Google (Nasdaq: GOOG) also provides an e-retailing venue demonstrated to be more cost-effective than Amazon's charges to third-party sellers.
While Amazon may raise its fees, that doesn't inherentlymean the end of the company. But it does suggest some lack of regard for its partners. Amazon chose to build dozens of new fulfillment centers andoffer free shipping for "Prime " customers. Now it's shoving those costs onto retailers who had no say in the matter. It's not exactly a move that makes newcomers want to do business with the company, and considering third-party sellers drive nearly 40% of Amazon'ssales , this is no small matter.
2. Lack of focus
The problem? Amazon could fend off new e-commerce competition just by overwhelming newcomers. But it's unable to do that on the digital content and consumer electronics front, where bigger competition is already established.
A look at Amazon's numbers shows that its 2010revenue of $34.2 billion climbed to $61 billion in 2012, whileoperating income dropped from $1.4 billion to $676 million, respectively. These new ventures are proving very expensive.
3. No longer shielded by a wide moat
Amazon's early investors enjoyed a "wide moat" -- no other e-commerce name had the wherewithal to rival Amazon's dominance in the books or electronics markets. And the company kept competition at bay for years. But within the past couple of years, some deep-pocketed e-commerce names have started to make a dent in Amazon's third-party seller business.
Google is one of those threats. Wal-Mart ( WMT ) is also turning the heat up with its Wal-Mart Marketplace, where third-party sellers can offer their goods online through the company's website. Although only six merchants are on board, more are rumored to be on the way -- Wal-Mart is reportedly pickier than Amazon about its third-party vendors.
Neither Google nor Wal-Mart generate anywhere near the
e-commerce business that Amazon does on an annualbasis .
Wal-Mart's Web-driven revenue of about $9 billion in 2012 was
dwarfed by Amazon. On the other hand, Wal-Mart got serious about
its e-commerce channel in 2012, when it hired more than 15
engineers to build a search engine to spur more e-commerce
Risks to consider:
Threats or not, Amazon is one of those few companies that can
mustersupport based on nothing more than a premise. Given
thestock 's history of blind bullishness, it's possible themarket
could come up with reasons to ignore these challenges.
Action to take --> This isn't to say Amazon is on its death bed. Indeed, the company will likely be around for a long time. But its era of dominance is over, and it's no longer a must-have growthinvestment . There's no need to sell it immediately, but now's the time to start opening your mind to stronger e-commercestocks that could outperform Amazon in the future.