Why Amazon.com Is in Trouble

By Douglas A. McIntyre Published Jan 29, 6:45AM EST

Why Amazon.com Is in Trouble — © leminuit / Getty Images

At Amazon.com Inc. (NASDAQ: AMZN | AMZN Price Prediction), it is the dot-com part of the business that is in trouble. Threats to its e-commerce business and related operations, like Prime Video, were part of the larger half of Amazon and, based on revenue, still are. Its faster-growing, larger margin Amazon Web Services (AWS) may not be able to offset that. (Here are 11 reasons to avoid Amazon today.)

Amazon will announce earnings soon, and they will likely be more of the same. While e-commerce grew in the most recent quarter, it was not at the pace investors were used to. Amazon’s North American revenue rose year over year from $78.8 billion to $87.9 billion. Operating profits were $4.3 billion, which means North American margins were only 4.8%. In international e-commerce, revenue rose from $27.7 billion to $32.1 billion. The operation lost $95 million.

Amazon not only has e-commerce challenges from several growth rivals like Walmart.com, but its Prime Video operation has increasing competition from Netflix and other companies, including Disney+, Hulu, Apple TV+ and streaming services from other media companies. Most homes have three or four streaming services, but there is not room for all contenders. Another challenge is churn. Consumers leave a service like Prime Video to move to other services. Amazon then has to replace these customers. After growing market pressure, Amazon Prime laid off several hundred workers earlier this month.

AWS is the part of the company that impresses most investors, but even its growth has started to slow. It is the largest cloud computing company in the country but faces growing pressure from Microsoft, Google and several other large tech companies. Its revenue in the most recently reported quarter was $23.1 billion, up from $20.5 billion. Operating profit was a hefty $7 billion. However, that is insufficient to offset Amazon’s struggling e-commerce bottom line.

Amazon’s legacy business is struggling, and AWS cannot lift the entire company to fast growth and high margins.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.