- AMZN stock has fallen by over 6% since Trump won the presidential elections.
- Analyzing the risks leads you to believe that fears around Trump's impact on Amazon.com are overdone.
- In fact, Trump's policies could actually help Amazon.com, and drive AMZN stock higher.
Shares of Seattle, Washington-based Amazon.com (NASDAQ:AMZN) have come under pressure since Trump won the US presidential elections. AMZN stock is now down by over 6% since the election results came out. A lot has been written about the war of words between Amazon CEO Jeff Bezos and President-elect Donald Trump. And Trump's subsequent promise to give Amazon.com a not-so-easy time seems to be taking a toll on the stock. However, analyzing the risks would lead you believe that fears around the 'Trump impact' are probably overdone. If anything, Trump's policies might end up helping Amazon.com. Here's how.
Cut Straight To The Chase - Taxes - Risk Or Opportunity?
The biggest risk that emanates from Trump's victory last week, is the possibility that Amazon may be forced to collect what is popularly known as the 'Amazon tax' in all 50 states. According to federal law, online retailers like Amazon are not required to collect sales tax in states where they do not have a physical store. A lot of brick and mortar retailers have objected to this, claiming that it gives online retailers an undue advantage, allowing them to price products more aggressively. A change in this law could mean that Amazon would have to collect sales taxes across the United States, as opposed to the 23 states where it currently does.
The impact is likely to be felt both on Amazon's top-line, as well as bottom line numbers. A report earlier this year, coincidentally published by Jeff Bezos owned Washington Post, suggests that the impact on Amazon's top-line numbers could be significant. In some cases, the report suggests that buyers cut their spends on Amazon.com by as much as 12% upon implementation of the 'Amazon tax'. Interestingly, the report also suggests that buyers took to traditional retailers like Best Buy (NYSE:BBY) instead, in some cases. This is a material risk. However, there are two points worth pondering over. (Also Read: Why I would buy Amazon stock post Q3 earnings)
While such a tax would impact Amazon.com the most, given that it's the biggest online retailer in the US, it would also impact players like Walmart (NYSE:WMT), which are desperately trying to build a competing online retail business. In effect, the tax could deal a bigger blow to the sprouting competition than to Amazon.com, which has a big base of Prime subscribers.
Further, it's unclear if higher sales for traditional retailer Best Buy (as reported by the study) were linked to the 'Amazon tax' alone. Even if such a tax were to take away Amazon's pricing advantage in-part, that's not to say that goods on Amazon would become costlier compared to traditional retailers. To further Amazon's cause, this is where the aspect of convenience comes in. With Amazon.com offering same day delivery and one-hour delivery, the offering is not about price alone. Besides, as long as Amazon can match the prices on offer at brick and mortar retailers, it's hard to see why consumers would look elsewhere over an extended period of time.
As a matter of fact, Trump's policies could give Amazon something much bigger to cheer about, than they could take in the form of sales taxes. Trump's proposal to lower the corporate tax rate from 35% to 15% could more than undo the damage to Amazon's bottom line. And as Amazon strengthens in position in global markets, the President-elect's proposal to cut the tax rate on income held overseas, form 35% to 10% will come as an additional positive.
Antri-Trust? Multiple Credible Voices Say - Nah!
Be it Amazon.com or AWS, Bezos' companies undisputedly stand for one thing, aggressive pricing. A recent post on Investopedia concurs. Quoting from the post:
"To bring about these charges, the administration would have to prove that Amazon’s practices have adversely affected consumer choice. So far, there is no proof nor are there complaints (from other startups) that Amazon has used its position to harm consumers or adopted illegal tactics against competitors."
A post on Seattle Times also points out that Amazon is not as big a player as some others like Wal-Mart. What's more, Amazon's competitive, and often lower prices, definitely don't adversely impact consumers.
As far as implementing more protectionist policies goes, the report adds that Trump's threat to "tear up" free trade agreements isn't going to be easy to execute, potentially taking years, even if it does come to fruition, "especially when needing the support of many Republicans who have long seen free trade as a core tenet". In the worst case scenario, given the importance of Asia's large middle-class population to American corporations, such a move would impact a huge number of companies, not Amazon alone. (Also Read: 3 Reasons Why Amazon.com Inc. (AMZN) Is A Great Buy).
Last but not the least, as most of you know, The Washington Post doesn't even belong to Amazon.com. It belongs to Jeff Bezos, who bought the media company in his personal capacity. To sum up, most of Trump's policies might actually help Amazon.com. And those that don't, like Trump's protectionist policies, for instance, won't hurt Amazon alone, potentially hurting the overall US economy, making these proposals increasingly hard to pull off.
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