BANGALORE Wall Street's expectations for margins at Amazon.com Inc are too high, and growth at the world's largest online retailer is slipping, analysts at BofA Merrill Lynch said, cutting the company to "neutral" from "buy."
Shares of the company were down 2 percent at $120.5 Thursday morning before the bell.
Amazon -- which sells everything from from books to bath fixtures and also offers a host of services to businesses and Web developers -- is one of the fastest growing names in the sector.
But the analysts said beginning third quarter, they expect a material fall in growth, down as much as 28 percent by the fourth quarter after adjusting for foreign exchange rates.
"Amazon remains one of the faster growers in the Internet sector, and this is not a Kindle-sales-related downgrade," they wrote in a note to clients.
The company, which owns the highly-popular Kindle electronic reader, has been fighting a price war with Apple Inc's pricier iPad tablet computer rival and Barnes & Noble Inc's Nook e-book reader.
"We view the street estimate of $380 million in GAAP operating profit as too high," the analysts said, as they expect pressures from a competitive e-book reader market and hiring costs among other things.
They also said rising competitive pressures for the digital sector could continue to impact headcount and hiring at the company.
"We see more economic indicators trending negatively and less potential for a top-line acceleration surprise," they said.
(Reporting by Nivedita Bhattacharjee in Bangalore; Editing by Jarshad Kakkrakandy)
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