Reuters: Global Markets: Amazon shares sink on growth, valuation concerns

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Amazon shares sink on growth, valuation concerns Apr 26th 2013, 17:18 A worker carries packages for shipment at the Amazon warehouse in Leipzig, December 3, 2008. Credit: Reuters/Fabrizio Bensch By Alistair Barr and Ben Berkowitz SAN FRANCISCO/NEW YORK | Fri Apr 26, 2013 1:18pm EDT SAN FRANCISCO/NEW YORK (Reuters) - Amazon.com Inc's stock sank nearly 8 percent on Friday on concerns about slowing growth at the world's largest Internet retailer. Analysts at J.P. Morgan, Credit Suisse and Pacific Crest Securities lowered their price targets on Amazon shares, citing the top-line deceleration. Late on Thursday, the company reported slower revenue growth and offered a disappointing outlook for this quarter, exacerbating uncertainty about the health of its business beyond the United States. If Amazon's growth rate continues to slide, Wall Street worries that the company could stop being considered a growth stock and instead be valued based on future earnings. While profit margins are improving, Amazon does not generate enough income yet to support its current valuation, according to one analyst. "As unit growth decelerates, does Amazon stop being a growth stock and start becoming growth-at-a-reasonable price?" said the analyst, who requested anonymity. "Margins are coming up but they are still pretty low, so there's not much support for an earnings multiple valuation." The analyst did not want to be identified because these concerns are based on a worst-case scenario for Amazon. "That's not my base case but that's the concern," the analyst added. "The stock could be stuck between $250 and $280." Amazon shares were down 7.6 percent at $253.80 on Friday afternoon on the Nasdaq. Despite declines, Amazon shares are still trading at about 100 times 2013 estimated earnings and 75 times 2014 forecast profit. Even on a more-forgiving valuation method, Amazon shares are expensive. The stock trades at about 20 times earnings, before interest, tax, depreciation and amortization, or EBITDA. Google Inc trades at about 10 times EBITDA and eBay Inc trades at 11 to 12 times EBITDA. Amazon faces a sluggish European economy and inconsistent efforts to break into emerging markets such as China, where competition from the likes of Alibaba is intense. "Amazon's now growing at about 2x eCommerce, compared to 3x a year ago," Doug Anmuth, an analyst at J.P. Morgan, wrote in a note to investors following the company's results. Traditional retailers are losing less market share to Amazon than they used to as they increase selection online, price-match more aggressively, and work to combat showrooming, Anmuth argued. Amazon shares are up only 1.5 percent so far this year, while traditional retailers Wal-Mart Stores Inc and Target Corp are up about 16 percent and 20 percent, respectively. Shares of Best Buy Co and HH Gregg Inc, electronic retailers that have been particularly hard hit by Amazon competition, have doubled so far this year. (Writing by Ben Berkowitz; editing by Edwin Chan, Lisa Shumaker and Matthew Lewis) Link this Share this Digg this Email Reprints

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