Analysts: Amazon.com partner problems not that damaging
Online travel firm Expedia Inc. (EXPE.O) said it is unhappy with a deal for Amazon to promote its travel services on its Web site.
"We've not been pleased thus far with the exposure we have received and we are working to resolve that with them," Suzi LeVine, Expedia's director of product marketing, told Reuters.
Privately held travel site Hotwire is also displeased, according to widely published reports.
News of the trouble with the travel deals follows reports that Toys "R" Us Inc. (TOY.N) is trying to renegotiate a deal in which Amazon books online orders for the toy seller in exchange for fees on each transaction.
News of the dissatisfied partners has hit Amazon's stock over the last two days. Shares fell 3.1 percent to $14.03 on Friday afternoon, following an 8-percent drop on Thursday.
An Amazon spokeswoman could not be reached for comment.
But analysts said the sell-off is an over-reaction to bumps in what has so far been a successful strategy by Amazon to offset slowing growth in its core business of selling everything from books to kitchen goods.
"The reactions are overreactions. The risks are exaggerated," said U.S. Bancorp Piper Jaffray analyst Safa Rashtchy. "To me this is actually a buying opportunity."
Such deals drew $225 million in revenue for Amazon last year, only 7 percent of total sales, but with gross margins about double that of its core books, music and video business.
Toysrus.com is still losing money but that figure is shrinking. Sales for the most recent quarter ended Feb. 2 rose 24 percent while operating losses narrowed to $17 million from $54 million, the company said on Thursday.
"Toys R Us is trying to get more money out of Amazon. The deal is working so well, Amazon is making money but Toys R Us is losing money in online sales and is trying to get more," Rashtchy said.
Travel also a sore spot
Rashtchy said he was not surprised at news of displeasure among Amazon's travel partners.
"We had known they hadn't been doing that well and Amazon, they are not really pushing travel, it's quite crowded," Rashtchy said. "Amazon hasn't decided what to do with travel. They were late getting into it."
Despite the potential setbacks, Amazon has many other partners, including Circuit City (CC.N) for electronics, Drugstore.com Inc. (DSCM.O) for health and beauty, and Target Corp. (TGT.N) for clothing and other merchandise.
Other analysts have downplayed the impact of any reworked deal on Amazon, pointing out that the pioneering dot-com posted a net profit in its most recent quarter, surprising many observers who had questioned whether the company could ever make money.
"Given how solid their business is, this probably has less of an impact than it would have were it six to nine months ago," Deutsche Bank Alex. Brown analyst Jeetil Patel said after the news surfaced on Thursday.
Under the Target deal, Amazon currently sells some goods for the retail giant on its own site, but is also redesigning the Target.com Web site to run on Amazon technology.
That relationship could eventually become the biggest revenue generator for Amazon, Rashtchy said.
"The critical deal people should be focusing on is Target," Rashtchy said. "They will have their Target store and they will be running the Target site and having increasing numbers of sales, so it will be multi-faceted."