Here's another Amazon.com (NASDAQ:AMZN) prediction from me: Amazon.com's media segment revenue growth will probably turn negative before the end of the year, then re-accelerate into positive growth. My guess would be that this will happen in Q2 or Q3.
It's a bit of a long shot, but there are several reasons for me predicting this. I will list them below.
Overall Amazon.com revenue growth is slowing fast
For many different reasons, including sales tax collection and price matching by physical retailers, Amazon.com's overall revenue growth is slowing down fast. In Q1 or Q2 2012, overall revenue growth will break below 20% year-on-year.
Amazon.com's revenue came in $1 billion below expectations during Q4 2012, and Amazon.com also guided down Q1 2013 $1 billion below prior market estimates. At this point the market consensus is for Amazon.com's revenues to grow 22.6% during Q1 2013 and 24.4% during Q2 2013, implying a re-acceleration of growth in the short term. This stands in stark contrast with the recent evolution of sales growth, as we can see below, and his highly unlikely to happen.
What is more likely to happen is for Amazon.com to guide down revenues for Q2 2013, much like it has been doing for all of the past year regarding the upcoming quarters.
eBook revenues are decelerating fast as per the publishing industry
Although Amazon.com's lack of transparency means we can't have an exact idea of the size of the ebook revenue, we have indications from publishers that ebook revenue growth is decelerating fast. Amazon.com did claim 70% growth for 2012, but it's again hard to say what such a number includes due to the lack of transparency.
Anyway, there have been several reports (I, II) highlighting the slowing ebook sales. At the same time Amazon.com has been losing significant market share to other players, namely Apple (NASDAQ:AAPL), because obviously iBookstore is better integrated with iOS than Amazon can ever be (and still avoid Apple's 30% cut). Over the last 2 years, Amazon.com went from 57.1% (2010) of the ebook market down to 44.5% (2012), as per Morgan Stanley.
The chart below also illustrates how the increase in ebook revenues at mid-2012 was already slowing down when compared to a torrid 2011 (Source: ebookcomments blog)
(click to enlarge)
Finally, the straw which might break the camel's back
A lot of people don't know it, but part of Amazon.com's media revenues is actually gaming consoles. Not games for the consoles, but the consoles themselves. Now, both the xBox 360 and the Sony Playstation 3 are going to be replaced during 2013. The new devices will most probably hit the market at the end of the year, and there will be a very likely lull in console buying prior to that, much like it happens with every iteration of the iPhone, but even stronger given that the console cycle is much longer.
It will be this lull which might, together with the other effects, impact Amazon.com's media revenues to the point where they turn slightly and temporarily negative. Then, in late 2013, the new consoles might actually lead to a re-acceleration of the media segment revenues.
Can Amazon.com avoid this prediction?
Actually it can. Amazon.com has no transparency whatsoever. One of the reasons I predict media revenue will turn negative is because Amazon.com has, in the past, included gaming consoles in its media segment. Amazon.com might elect to include other weird choices in this segment to present is as still growing.
Amazon.com trades as if its strong revenue growth will be unending, even in the face of successive revenue warnings. It might thus come as a surprise to the market if Amazon.com's original segment, its media segment, sees its revenue growth turn negative year-on-year even if just temporarily. After all, Amazon.com does not trade at multiples compatible with negative growth of any kind.
This event - if it comes to pass -- might thus constitute a possible catalyst leading to more a more realistic valuation for Amazon.com stock.
Disclosure: I am short AMZN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.