Wednesday shares of Amazon.com Inc hit lowest levels since March, slipping 30 cents and moving from $170.25 earlier to closing at $180.21. Mid-October shares were at a record $246.71, 35% up for the year to date. The drop happened on concern that its big spending and aggressive pricing will gain well come holiday season through 2012.
After the record October shares, Amazon introduced the Kindle Fire tablet at $199 which was close to cost, said IHS iSuppli and other computer analysis firms. While negative reviews were thrown at it, analysts saw strong sales and positive digital content impact, sales-wise. Analyst RJ Hottovy expects at least 5 million 4th quarter Kindle Fire sales seeing how it sells so well but that means additional margin pressure. Since mid-November when the Fire started shipping, shares dipped more than 20% compared to eBay’s 5% dip in the same period and Nasdaq Composite Index’s 4.9%. Amazon is into digital content investing too, like movies and television shows as well as new distribution centers to back its online retail business. Hottovy wonders when the investment will pay off.
Amazon profit concern intensified after Best Buy Co reported dismal earnings this week as the two compete in consumer electronic sales. Analyst Chad Bartley said Best Buy’s online business did better, signaling how e-commerce is taking market share. The negative side is how Best Buy results show a lot of discounting this holiday, added Bartley. Recent Goldman Sachs data showed Amazon’s consumer electronics prices averaging 9-10%. This is lower than most e-commerce websites like Best Buy, Target, Costco and Wal-Mart. Analyst Heather Bellini said Amazon’s 2012 profit estimates may be too high while 2012 earnings per share was forecasted at $1.42 against an average analyst estimate of $2 per share. Present Amazon share price is based on expected climb next year. Bellini said that for the stock to materially appreciate in the near term would require the company to beat and raise on the bottom line over the next few quarters. Given the lower operating forecasts for 2012, the scenario is unlikely.