Amazon downgraded as digital move threatens physical sales
SHARES in Amazon.com, the world's largest web retailer, fell as much as 5.1pc after Morgan Stanley downgraded the stock, citing competition from Apple 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," warned Scott Devitt, a Morgan Stanley analyst in New York.
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, Mr Devitt said.
"Amazon.com is currently the market share leader in books but otherwise faces an uphill battle," said Mr Devitt, who cut Amazon's rating to 'equalweight' from 'overweight'.
Amazon is also relying more on third-party sellers for its revenue.
While that trend is positive in the long run, physical third-party goods aren't growing as fast as some investors believe, Mr 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, Google and Apple. (Bloomberg)