By Supantha Mukherjee and Sonam Rai
(Reuters) - Shares of Amazon.com Inc (O:AMZN) dropped by the most in four years on Friday after its outlook for holiday season sales missed targets, fanning concerns that Wall Street's tech darlings are finally starting to face stronger competition.
The third quarter results were the second time running that billionaire Jeff Bezos' firm had fallen short of sales targets and, allied to a similar disappointment from Google-owner Alphabet (O:GOOGL), they sent a shockwave reverberating through stock markets.
There were no ratings downgrades from the Wall Street analysts who have almost universally backed the companies' long-term prospects, but several said there were signs that both were beginning to face tougher competition from tech peers as well as the retail companies Amazon has bullied in recent years.
The 9-percent fall in shares knocked more than $80 billion off Amazon's market value and relegated it behind Microsoft Corp (O:MSFT) and Apple Inc (O:AAPL) in terms of market value.
Now the Seattle-based firm has devoured retail players like Borders, Sears and Toys 'R' Us, it was facing bigger challenges from multinationals who are investing hard to compete, D.A. Davidson & Co analyst Thomas Forte said.
"Google, Microsoft, and Walmart (NYSE:WMT) ... are more difficult to kill," he said.
Shares in Alphabet fell about 6 percent, knocking about $45 billion off its market value after it fell short on sales after beating estimates for the past eight quarters.
Revenue from Amazon's international business, which brings in 27.5 percent of total sales, was at the heart of the shortfall in results, growth halving to 13.4 percent compared to the previous quarter.
"We don't see any real structural issue with Amazon but nearly every line in the business is decelerating a tad, and we typically see another deceleration in retail in 4Q, hence are struggling to identify a catalyst," Barclays (LON:BARC) analyst Ross Sandler said.
Amazon expected sales in the holiday quarter leading up to Christmas to rise between 10 percent and 20 percent, to as much as $72.5 billion, while analysts had expected a maximum figure of $73.9 billion, according to Refinitiv data.
Its operating profit forecast of between $2.1 billion and $3.6 billion also came in below consensus estimates.
Several analysts called the company's outlook conservative and said any outright dip in profit seems highly unlikely.
"Overall, Amazon's growth trajectory remains solid, including advertising, grocery, pharmacy, and specialty retail, as well as Amazon Business ($10 billion in sales in eight countries) and Amazon Web Services," Telsey Advisory Group analysts said.
Shares of the company were down 9.0 percent at $1,622 in morning trade.