Wall Street's patience with Amazon's slim profit margins might be starting to expire. Shares of Amazon plunged 9 percent on Thursday to around $307, one day after the e-commerce company reported its first-quarter results. Amazon met analysts' expectations for the bottom line and even posted a tiny beat on revenue, but investors who were ambivalent toward the report yesterday afternoon appear to have changed their minds overnight.
Why is the market so unhappy? It's hard to say. Amazon has a long history of spending lavishly on new developments at the expense of its own profits. And, for a long time, Wall Street has essentially put its trust in Jeff Bezos and given him a bye on these figures. But analysts are now pointing to an ongoing deceleration in the company's unit sales growth, which fell to 23 percent from 25 percent in the previous quarter, as possible cause for concern.
Unit sales are important because they tell investors how many items Amazon has sold. When growth in that figure slows, it can suggest that the investments Amazon is making aren't necessarily paying off. Aaron Pressman at Yahoo! Finance notes that sales of Amazon's Kindle grew only 21 percent last year, while tablet sales overall vaulted 68 percent. He adds that while Amazon slightly beat expectations in the first quarter, those forecasts had already been drastically reduced after the company's disappointing 2013 holiday season.