Amazon’s Media segment’s revenue growth has slowed down
In the prior parts of this series, we observed why Amazon’s (AMZN) operating expenses are increasing. However, Amazon’s revenue growth is also slowing down, especially for its Media segment. As the chart below shows, Amazon’s Media segment’s year-over-year revenue growth has slowed down from 13% in 3Q13 to only 4% in 3Q14. This segment sells media products such as books, games, and software, both in digital and physical forms. The company’s other segment—Electronics & General Merchandise—has maintained its growth, though.
There are a couple of reasons why the growth of Amazon’s Media segment has been slowing down. According to Amazon, it has seen a trend shift from users starting to rent books rather than purchasing them outright. Another reason was that, last year, Amazon discounted its physical books heavily, which led to stronger demand. However, it also meant that year-over-year comparisons became difficult, which is why we saw slow revenue growth in Amazon’s Media segment.
Competitive issues also affecting Amazon
There are more issues for Amazon to counter, which are competitive in nature. The problem for Amazon is that traditional brick-and-mortar stores have started to beef up their efforts in the e-commerce market. Wal-Mart (WMT) and Target (TGT) both recently announced that this year’s Thanksgiving Day was the second-best and best day ever, respectively, for online sales.
Google (GOOG)(GOOGL) has also become an aggressive player in the e-commerce with its same-day shopping service, Google Shopping Express. Although Google Express is still a work in progress, it could become a major force.
Slower revenue growth doesn’t bode well for Amazon’s investors—especially since its operating margins are also going down. You may want to cut your exposure to ETFs like The PowerShares QQQ Trust (QQQ), which has decent exposure to Amazon.