Amazon'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 start-ups 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 US 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% 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% range in the first quarter. This would approach the fourth quarter's 25% jump but fall short of the 30% rise of a year ago and the 49% 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% to $19 4 billion. Rival eBay will report earnings on 29 April.
Tapping the brake
One big reason for the deceleration in unit sales growth is the growing number of US states forcing Amazon to levy sales tax, analysts say. Amazon says it now collects taxes in 20 states - including California and Texas - and will begin doing so in Florida next month, with Maryland next up.
In states where it collects taxes, household spending on Amazon's Web site fell about 10%, according to a survey of 245 000 households that spent at least $100 a month in 2012's first half, conducted by Ohio State University.
Since the financial crisis, US states have been looking to plug holes in their budgets. State governments have said they lose $23 billion a year in uncollected sales taxes.
The so-called "Amazon Tax" has shifted consumers' shopping behaviour, Ohio State researchers found. This is particularly true for purchases exceeding $300, when Amazon sales fall by 24% if a state sales tax is imposed.
"There's no question that there's going to be a near term headwind," Pacific Securities analyst Chad Bartley said of the sales tax.
Amazon is now investing heavily to develop media content and expand its line-up of devices, while continuing to build a cloud computing service popular with businesses looking to outsource data centre management.
On Wednesday, Amazon clinched a deal with HBO to stream older HBO shows, including "The Sopranos" and "The Wire".
The company is also building warehouses in states that impose sales taxes, laying the groundwork to expand same-day and next-day delivery services to more US consumers.
"As they build out that capability, they're going to be able to deliver products even faster and eliminate one of the last advantages that a brick-and-mortar has," Bartley said.
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