Amazon: Profit Margins Up but Faces Shrinking Market Share

Global online retailer Amazon.com Inc. has announced that its first quarter profit climbed 68 percent, which fell short of some analysts’ estimates, suggesting that the company may not be reaping enough profits from the economic recovery.

Investors had expected that the consecutive positive results over the last 2 quarters would be repeated from 2009 to 2010. However with the earnings report, it seems Amazon is also reflecting its competitor eBay Inc., whereby earnings growth is not keeping up with the overall increase in consumer confidence.

“In [Amazon’s] case what we have is a very solid first quarter, but it looks like margins compressed ... so that might be a concern going through the rest of the year,” said Scott Tilghman, a Hudson Square Research analyst, in an interview with Reuters.

The Seattle-based company had first-quarter net income increased to $299 million, or 66 cents a share, from $177 million, or 41 cents, a year earlier. Amazon.com forecasted the revenue for this quarter to be $6.1 billion to $6.7 billion. The analysts had predicted $6.84 billion on average for the first quarter and $6.4 billion for the second quarter, according to Bloomberg.

Established 15 years ago, the online retailer had focused its initial trading as an Internet seller of books. Since then, there has been more diversification of products available on their electronic platform, such as music, movies, electronic gadgets—including computers, and even kitchen and dining products.

However, aggressive competition, such as Apple Inc., has been blatantly on the attack. For instance, Apple CEO Steve Jobs stated during a recent interview that “Amazon's done a great job of pioneering this [e-book] functionality with the Kindle, and we're going to stand on their shoulders.”

Amazon’s Kindle was launched in 2007 as a product that enabled consumers to purchase electronic books directly from its internet portal. Although Amazon.com seems to have a monopoly on the e-book market, tallying up to 90 percent, Apple's iPad and similar competing products will likely compromise Amazon’s position and gain 72 percent this year, according to Credit Suisse Group AG.

Amazon.com's stock plunged as much as $10.59 to $139.50 in late trading, after closing at $150.09 on the Nasdaq Stock Market. Its stock has soared 90 percent over the past year, double the gain by the Standard & Poor’s 500 Index.