Amazon's eroding tax advantage, bid to sustain growth in focus in first quarter

Wed Apr 23, 2014 2:00pm EDT
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By Deepa Seetharaman

SAN FRANCISCO (Reuters) - Inc's quarterly results on Thursday may heighten worries that its edge over online and even traditional brick-and-mortar rivals is narrowing as it charges sales tax in more states, curtailing growth in its core business.

Amazon, which has expanded aggressively into mobile devices and computing services to try to sustain its pace of growth, may lose customers to a growing crop of retail startups and major chains that had been slow to react but are now focusing on their own online commerce strategies, analysts say.

Longer term, the imposition of sales taxes across a growing number of states could exacerbate that trend.

"The imposition of state sales taxes in major markets such as California, Texas, and Pennsylvania may have caused a growth drag," RBC Capital Markets analyst Mark Mahaney wrote in a note this week. He listed five other potential reasons, including aggressive price cuts by retailers that undercut Amazon's advantage.

The largest U.S. online retailer's year-over-year unit sales growth - a closely watched measure of how many items Amazon has sold - has slowed considerably over the past two years. This has hobbled the stock, down more than 17 percent this year and the ninth worst performing stock in the S&P 500 index.

RBC Capital expects unit sales to grow in the mid-20 percent range in the first quarter. This would approach the fourth quarter's 25 percent jump but fall short of the 30 percent rise of a year ago and the 49 percent jump in the first quarter of 2012.

Amazon is expected to report first-quarter earnings per share of 23 cents. Revenue is expected to jump 21 percent to $19.4 billion. Rival eBay Inc will report earnings on April 29.


The sun reflects off Amazon's logistics centre in Graben near Augsburg December 16, 2013. REUTERS/Michaela Rehle