Amazon Downgraded Over Margin Fears

Jeff BezosAmazon’s Jeff Bezos

Photo: Reuters

J.P Morgan has downgraded Amazon shares from overweight to neutral.It is afraid the e-commerce company’s gross profit growth is going to slow sharply this year and its margins will shrink.

Amazon is currently in the process of transitioning from first party sales to third party sales, so its gross profit is more important than revenue right now. In other words, “Amazon’s future is not selling stuff (directly),” as Wired recently wrote.

But analysts think third-party sales will be moderate in 2013, and that margins will get tighter as Amazon sells more devices like Kindles which are costly to create. Amazon’s gross profit grew 40 per cent in 2012, but analysts think it could decelerate to 31% in 2013.

Amazon also faces stiff competition from both hardware providers like Apple and rising e-commerce companies, which J.P. Morgan has taken into account.

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