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We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member., Inc. (AMZN) Turbulence Ahead?

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Many observers have become confident in the last few years that, Inc. (NASDAQ:AMZN) is building a moat that will allow it to dominate e-commerce for decades. Accordingly,, Inc. (NASDAQ:AMZN) stock has recorded tremendous gains since the end of the Great Recession:

AMZN Chart 5-Year Price Chart, data by YCharts.

However,, Inc. (NASDAQ:AMZN) shares dropped significantly after the company reported earnings last Thursday. While EPS beat analysts’ estimates, Amazon’s revenue did not quite meet expectations, and the company also guided for slower-than-expected revenue growth next quarter. Amazon has a high-class problem: It has grown so much in the last few years that it is getting harder to maintain that growth rate. That said, while Amazon’s business is fundamentally healthy, investors are still coming to grips with what the company is actually worth. Based on Amazon’s likely future growth profile, the stock still seems overvalued after its recent drop. Inc. (AMZN)Growth: Great is not good enough
In the first quarter,, Inc. (NASDAQ:AMZN)‘s revenue grew 22%, or 24% holding exchange rates constant. This was slightly better than what I had expected, but still below what Wall Street was hoping for. Most companies would be thrilled to have revenue growing this quickly, but it still represents a significant slowdown from Amazon’s 34% growth rate (in constant currency) from first quarter 2012.

There are a few factors that are hampering Amazon’s growth. First,, Inc. (NASDAQ:AMZN) has taken such a large piece of the media market (e.g., books, music, and movies) that it is starting to saturate the market. Media revenue grew just 10% last quarter in constant currency. Second, Best Buy Co., Inc. (NYSE:BBY)‘s decision last fall to start matching Amazon’s prices has negated Amazon’s biggest advantage in the consumer electronics market. As a result, Best Buy seems to be regaining some market share for expensive products like big-screen TVs.  Other retailers like Target have also introduced price-matching policies, which will tend to amplify the effect on Amazon.

Lastly, while Amazon Web Services continues to grow rapidly, revenue growth — not to mention profitability — is being offset by brutal competition from Google Inc (NASDAQ:GOOG) and Microsoft Corporation (NASDAQ:MSFT). Both have massive financial resources compared to Amazon, and they view cloud services as critical to their business strategies. Accordingly, both seem willing to invest substantial sums in their cloud services platforms while cutting prices as fast as, Inc. (NASDAQ:AMZN) does.

More taxes coming?
The attempts by many states to impose sales tax on online purchases will create another headwind for Amazon. The imposition of sales tax on Amazon purchases in Texas, Pennsylvania, and California during 2012 may be partially responsible for the slowdown in Amazon’s revenue growth in the past several quarters. However, Amazon still doesn’t collect sales tax in most states.

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