Challenges to's Growth Strategy continues to maintain a solid growth trajectory, but there are challenges to maintaining this growth over the long term.

Feb 12, 2014 at 7:39AM (NASDAQ:AMZN) has plenty of opportunity to continue growing revenue at double-digit rates for the foreseeable future. However, it is important to acknowledge the significant challenges that exist in's pursuit of further market share gains from established retailers such as Wal-Mart (NYSE:WMT) and Target (NYSE:TGT). Profitability pressures have forced to consider price increase to its wildly popular Prime service, and this could be the first of many challenges facing the company in the near future.

Past failures will not be the last has a great track record of innovating and reshaping the consumer experience. While the company has used this success to deliver tremendous revenue growth, it is unlikely that every venture will be a success. While it is a distant memory, was an company that is often considered one of the biggest flops of the dot-com bubble.

More recently, invested $175 million in LivingSocial to enter the daily deal business. While LivingSocial still exists today, the outcome for was not much better than given that the company wrote off almost its entire investment in LivingSocial in late 2012.

Each time expands its e-commerce empire, there's the risk of failure. Management has taken years to fine tune the AmazonFresh grocery delivery concept to avoid a repeat of the fate of Webvan, one of the most notable dot-com failures in history. However, what does it mean to investors if grocery delivery service simply cannot be attractive to consumers relative to brick-and-mortar competitors while also being profitable?

Competition will not sit still
While has accumulated significant market share thanks to a great customer experience and disruptive e-commerce business model, it is naive to think that competitors are not devising plans to combat's ongoing growth. Some of these strategies will fail, like Best Buy's price-matching guarantee to combat "showrooming" this holiday season, but others will have success.

With hundreds of retailers fighting for market share, there will be plenty of competition. Wal-Mart is a great example; the company is testing same-day delivery including grocery delivery services. If Wal-Mart can effectively match the services offered by, Wal-Mart may have an advantage as e-commerce continues to evolve given its existing scale. Target, grocery stores, pharmacies, and other retailers are also working to find new ways to add the convenience of same-day delivery and in-store pickup of online orders. 

A looming price war
Assuming competitors can match's interface, selection, and delivery speed, the next threat to the company is a price war. Given's long-standing preference to accumulate market share rather than generate profits, a price war could put a dent in's business. The chart below illustrates how a wide range of competitors generates more operating income than

AMZN Operating Income (TTM) Chart

AMZN Operating Income (TTM) data by YCharts

With significantly higher operating incomes, these companies have the ability to fight back with lower prices as a defense against's ongoing growth. This is particularly true for Wal-Mart, which consistently generates operating income margins above 5% while investing in an e-commerce platform and same-day delivery services that rival those of has already acknowledged the limitations it faces in its quest to provide unparalleled price, selection, and customer service; the recent announcement of a planned increase in Prime subscription fees from $79 to somewhere in the $99-$119 range means that is starting to feel the squeeze from its low-margin model. Further pressure from a price war may impair's ability to grow.

Is still a buy?
There is certainly risk associated with an investment in A failed expansion into a new market, competition, and lack of flexibility due to lower operating margins are all concerns to monitor. Future evidence that any of these challenges might impact's long-term growth should be very seriously considered in evaluating an investment in the company.

However,'s core strengths and significant room for growth are unparalleled. Without the baggage of brick-and-mortar store costs, has been able to maintain a high growth rate for years. Until there is strong evidence that a competitor can create a more compelling value proposition for customers in terms of selection, price, fast and free shipping, and overall experience, it is likely that will continue on its growth trajectory.

Thanks to a decline in share price following last quarter's growth of "only" 20%, shares of can be purchased at a reasonable price considering the long-term outlook for the company's ongoing growth. 

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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