President Trump is not a big fan of Amazon and rarely wastes a good opportunity to attack the company or its management, including recent rumors that the administration is pursuing new ways to go after the online retail giant using antitrust or competition laws.
While some quarters were quick to downplay the president's sentiments as nothing more than his usual kvetching, it has now emerged that this might be more serious than the average Trump tweetstorm.
Trump has now criticized Amazon five times in two weeks about non-payment of taxes, causing AMZN stock slipping about 8 percent and losing about $50 billion in market value.
Amazon 30-Day Stock Returns
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Source: CNN Money
According to Reuters, Trump has re-opened the Amazon debate by claiming that his administration is “taking a very serious look” at Amazon's unfair business advantages, especially the company's sales tax situation.
Some might say that this is an odd amount of attention to be paying to Amazon at a time when everyone else is glued to the Facebook saga; but it could also be a game of distraction because the Facebook saga is not in the administration’s interest.
While the Facebook saga is about the illicit harvesting of data for election campaign purposes, among other things, focusing aggressive attention on Amazon may be a way of making this all look simply like tech companies have gotten too big, and too out of control. It helps to shift attention from the real issue at hand when it comes to Facebook.
In this light, Trump's allegations about Amazon's non-payment of taxes could be clutching at straws.
In the early days of ecommerce, payment of taxes by online retailers was a regulatory gray area. Later on, laws were passed that required web companies to collect sales tax, but only in states where they had an actual physical presence.
Before long, many states realized they were losing a ton of cash in foregone taxes--nearly $20 billion annually--and decided to close the loophole. Now Amazon collects sales tax in all but five states in the country: four have no sales tax, while the fifth has a municipal tax but no statewide tax. Related: The Billionaires Racing To Conquer Space
There's one remaining loophole though-- Amazon shoppers do not pay sales taxes when they purchase goods from one of the company's millions of third-party vendors. About half of Amazon's sales are from third-party sellers. But this isn’t really Amazon’s fault: it’s just a by-product of its unique business model that happens not to be clearly regulated.
Damage To AMZN Stock Is Short-Term
The president's salvo was able to cause so much damage because it came at a time when FANG stocks were out of favor.
Amazon's stock has been dinged, but the effects are likely to be short-lived. In fact, AMZN stock has weathered the selloff better than its FANG peers despite all.
FANG ETF 30-Day Change
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Source: CNN Money
Amazon is by no means the first company the president has attacked. He has done it to the New York Times, Lockheed Martin and Boeing. Their trajectories have all been remarkably the same--a short-lived selloff, usually lasting a couple of weeks or months, followed by a long-term rally. There's little reason why Amazon's should be any different.
The president's ivory-tower jousting and demagoguery aside, Amazon is likely to realize net benefits from the recent corporate tax cuts that would be offset by any additional taxes that might be imposed by Trump's administration. Furthermore, Amazon relies more heavily on its giant non-retail AWS cloud business, which drives 60 percent of its operating profits.
If this is all a distraction from Facebook, then it’s working. If it’s meant to bring down Amazon, it won’t.
By Jan Bauer for Safehaven.com
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