Amazon.com Inc. (NASDAQ: AMZN) believes it has its competition on the ropes, right where CEO Jeff Bezos wants them. However, if he is to trounce his e-commerce, multimedia and cloud-based computer rivals, he has to drive his company to a loss. That is Bezos’s conundrum, and the decision which helped drag his stock down 10% the day after releasing first-quarter earnings and 25% since mid-January.

The results with the last quarter were barely good enough for investors. Revenue was up 23% to $19.74 billion from the same period last yer. EPS rose from $0.18 to $0.23. The next part of the financial statement has been widely covered — and criticized:

• Net sales are expected to be between $18.1 billion and $19.8 billion, or to grow between 15% and 26% compared with second quarter 2013.
• Operating income (loss) is expected to be between $(455) million and $(55) million, compared to $79 million in second quarter 2013.
• The guidance includes approximately $455 million for stock-based compensation and amortization of intangible assets, and it assumes, among other things, that no additional business acquisitions, investments, restructurings, or legal settlements are concluded and that there are no further revisions to stock-based compensation estimates.

Bezos can fairly claim he does not have to invest much in e-commerce. He is already the leader in that business by far. Even huge rival Wal-Mart Stores Inc. (NYSE: WMT) has not made much progress against him.

Bezos can also claim at least a partial victory in the tablet PC market with his Kindle Fire. However, as Apple Inc. (NASDAQ: AAPL) and Samsung continue to press into the market, Amazon has to at least hold its own. The Kindle Fire is one of the critical conduits to his e-commerce business and the multimedia operation he is in the midst of creating.

Multimedia is one of two businesses where he is most at risk. Amazon Fire TV is priced at $99, which makes it relatively competitive with Netflix Inc. (NASDAQ: NFLX) streaming service and Apple’s Apple TV. However, as each of these two products increases features and marketing budgets, Fire TV may not be different enough for the general public to see a difference. Bezos does have the leverage of his hundreds of millions of e-commerce customers — a natural base for video steaming. However, Apple has its brand and a lead in the market.

The less obvious cost Amazon faces is in its Amazon Web Services cloud computing business. The business is the target of Satya Nadella, the new CEO of Microsoft Corp. (NASDAQ: MSFT), and it is a sector in which IBM Corp. (NYSE: IBM) and Oracle Corp. (NASDAQ: ORCL) believe they must have a dominant presence to keep and draw customers. Google Inc. (NASDAQ: GOOG) also is making waves in the cloud. The pricing for cloud computing is plunging as the competition heats up. While Amazon may hold first place in the enterprise cloud, prices may make that position unattractive.

Bezos has to do better than hold his own in several business, which is his excuse for losing money. Unfortunately, these may be businesses in which Amazon never makes a dime.

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