Amazon.com Inc., the world’s largest Web retailer, fell as much as 5.1 percent after Morgan Stanley downgraded the stock, citing competition from Apple Inc. and the decline of traditional media such as CDs and video games.
“Apple’s strength in iPhone and iPad sales are negatively affecting Amazon.com by accelerating the company’s transition from physical to digital media sales,” Scott Devitt, a Morgan Stanley analyst in New York, said today in a report. While Amazon is offering more digital goods, the move is threatening sales of physical music, movies and games, potentially crimping profit margins and return on invested capital, he said.
Amazon is seeking to extend its leadership in sales of traditional media, including CDs and DVDs, into the digital world. Though the company’s Kindle e-readers have given it an edge in electronic books, Apple’s success in mobile devices have made the online-media market more competitive, Devitt said.
“Amazon.com is currently the market share leader in books but otherwise faces an uphill battle,” said Devitt, who cut Amazon’s rating to “equalweight” from “overweight.”
The shares slumped 2.8 percent to $179.29 at 12:28 p.m. in New York, their third straight day of declines. The stock, up 6.6 percent this year before today, fell as low as $175.14 earlier in the trading session.
Amazon also is relying more on third-party sellers for its revenue. They use the company’s site to hawk their products and pay a commission to Amazon. While that trend is positive in the long run, physical third-party goods aren’t growing as fast as some investors believe, Devitt said. The shift also generates less per-unit revenue than Amazon gets selling an item itself.
The company is pushing into streaming video, putting it in closer competition with Netflix Inc. and Google Inc., in addition to Apple. Amazon added a streaming service to its seven-year-old Prime product in February 2011, allowing customers to watch TV shows and movies over the Internet. The company has struck deals with Viacom Inc. and News Corp. to add more video content to the product.
“Amazon.com has competitive strengths that could aid in its war for video market share, namely its video streaming delivery infrastructure and its large, engaged customer base,” Devitt said.
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