Is American e-commerce giant Amazon (AMZN.O) feeling the heat from the competition posed by the September New York debut of bigger rival Alibaba (BABA) from China or is the company reeling from poor management decisions?

Reuters reported over the weekend that Amazon shares plummeted 8.3 percent on Friday after the online trading firm reported a third quarter net loss of $437 million. It is the largest quarterly loss in 14 years for Amazon and more than 10 times the $41 million loss the firm logged in Q3 2013.

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The losses, which came despite a 20 percent increase in revenue to $20.58 billion, resulted in shareprices tumbling down to a year's low of $287.06 and erased over $12 billion in Amazon's market value.

When Amazon publicly listed in 1997, the company told investors to expect losses for the "foreseeable future" as it invests in the business anticipated to eventually yield larger sales figures. Investors bought CEO Jeff Bezos' invest-and-expand strategy that between 2010 and 2014 its shareprices increased more than four times to over $400.

However, investors had enough of Amazon's unwillingness to hold back spending, causing the backlash and sell off.

Michael Pachter, analyst at Wedbush Securities, identified the release of new products such as the Amazon Fire (its first smartphone), a new set-top box and streaming music service as spending that are "not clear how that leads to sales," reports The Wall Street Journal.

Daniel Morgan, portfolio manager of Synovus Trust, explains the dumping of Amazon shares to investors' tendency "to have very little patience; they don't really want to heat a long-term story," reports QCOnline.com.

Stifel Nicolaus analyst Scott Devitt pointed out that many investors, when they don't see a revenue stream, would often question the company's process is deciding to continue spending, turn back capital or redeploy the money elsewhere.

Wells Fargo analyst Matt Nemer concedes that predicting Amazon's profitability is a prolonged cycle is next to impossible, "profit metrics are clearly moving in the wrong direction and it's a fair question to ask, does Amazon have too many 'balls in the air'?"

The Friday results led at least 20 brokerages to cut their price targets on Amazon. Macquarie analyst Ben Schacter warned, "If the stock continues to get hit, we could even end up in a situation with activists calling for significant changes."

Besides the net loss, Amazon's operating loss also widened to $544 million from $25 million 12 months ago, while operating expenses grew to $21.12 billion from $17.12 billion. The additional expenses include the 36 percent increase in employee count to 149,500 and new warehouses in Florida, California and Texas.

While defending the e-commerce giant's strategy, CFO Tom Szhutak admits, "We certainly have been in several years now of what I call in investment mode. There's still lots of opportunity in front of us but we know that we have to be very selective about which opportunities we pursue."

Matthew Benkendorf, portfolio manager at Vontobel Asset Management, believes that Amazon has become too distracted to other efforts outside its core business of online retailing and web services.

"They are their own enemy to success. They really need to do some soul searching and get focused," he told Reuters.

TagsAmazon, e-commerce