Margin Pressure To Weigh on Amazon.com (AMZN) UBS Says; Downgraded to Neutral

Shares of Amazon.com (Nasdaq: AMZN) are down 2 percent today after UBS downgrades the stock citing margin pressure from the company's Prime instant video service.

UBS lowered its rating from Buy to Neutral and cut its price target from $195 to $180.

UBS analyst Brian Pitz said, "While we maintain our long-term thesis that AMZN will continue to dominate eCommerce, taking share from offline / online competitors, we are concerned that a more prolonged investment period – namely due to increased content costs and new distribution deals with hardware providers (game consoles, TV’s, etc) – may pressure margins for longer than originally anticipated."

Pitz said 2nd-half estimates may be too high, since free subscription streaming was not included in guidance. He no longer sees margin improvement in Q3 and Q4 as he sees "significant competition for content deals that will only continue to heat up." It now looks clear that Amazon will have to invest acquiring content, distribution deals, and technology, he states.

Free shipping costs will will also increase alongside Prime membership, the firm expects.

The firm lowered Q1 EPS estimates from $0.67 to $0.61 (cons $0.61), FY11 from $3.48 to $3.07 (cons. $3.19), and FY12 from $5.33 to $4.40 (cons $4.45).

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