Brocker.Org: Amazon Rivals Closing In, Pacific Crest Cuts Rating


Amazon (AMZN) got its rating downgraded by Pacific Crest Securities and it has rivals Microsoft Corp. (MSFT) and Wal-Mart Inc. (WMT) to thank.

Coming off of Amazon’s quarterly earnings results, Pacific Crest Securities analyst Edward Yruma lowered his rating on Amazon to sector weight from overweight over concerns its rivals in the world of ecommerce and cloud computing may be closing in on it.

Take the cloud computing market where Amazon’s Amazon Web Services unit has been dominating for starters. For all of 2016, Microsoft saw its cloud business increase 52% year over year, according to Pacific Crest. That compares to Amazon Web Services, which the analyst said saw a slowdown of growth to 43% year over year. In the fourth quarter the growth rate was 47% growth. “Despite our view that AWS (Amazon Web Services) can maintain a multiyear lead, cloud competition should intensify through 2017,” Yruma said in a research report to clients that was reported on by MarketWatch. (See also: Microsoft Buys Deis to Compete With Google, Amazon)

On the ecommerce side of things, Yruma pointed out that sales growth of first party vendors that sell wholesale to Amazon is slowing with the growth rate falling below the growth rate of third party independent sellers during the past two quarters. The analyst said moderating trends on that front could hurt future sales and profits. “We believe that Wal-Mart’s aggressive stance in e-commerce makes it a much more formidable competitor,” wrote Pacific Crest Securities. While Amazon has long dominated in the ecommerce world, forcing online and offline retailers to constantly play catch up, Wal-Mart has been getting much more aggressive as it aims to grow its online business. In April it rolled out discounts on online orders if customers pick them up in stores which may be eroding away at Amazon’s dominance. (See more: Is Wal-Mart the Next Amazon?)

Pacific Crest isn’t the only once bull that is getting more negative on Amazon and its stock. Earlier this week Raymond James downgraded its rating on Amazon to market perform from outperform, with analyst Aaron Kessler saying the ecommerce giant need to show “greater operating leverage” in its business to move towards the firm’s previous price estimate of $925. Kessler did not provide a new price target in his note. He identified the firm’s international operations, shipping costs and Prime video as areas where it could improve its margins. He also cited price cuts instituted by Amazon Web Services (AWS) and increased competition as reasons for limited operating margins in that business.