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Trump's Censure of Amazon Continues, Shares Fall Further

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Amazon.com, Inc. (AMZN - Free Report) continues to reel under President Trump’s repeated reprimanding. Shares plunged 5.2% on Monday and slipped a further 0.5% in after-hours trading, following Trump’s tweet about the company’s lower payments to the U.S. Postal Service (“USPS”) for deliveries.

Reportedly, Amazon now pays USPS half of what it does to United Parcel Service and FedEx to deliver a package. In a recent tweet Trump’s stated that Amazon’s shipping cost will rise by $2.6 billion if USPS increases delivery charges.

Trump had been vocal about the financial problems faced by USPS since last year. He is of the opinion that USPS should start to charge more for deliveries which has been growing with each new day. However, if Amazon decides to discontinue with USPS, analysts predict that the postal service will suffer a substantial loss.

Trump’s Tweets Batter Amazon

Last week Trump accused Amazon of impairing the future of mom & pop “retailers” as well as shopping malls. He also claimed that Amazon is causing damage to the small tax paying retailers.

To counter this, Trump is trying to regulate the company’s business practices through antitrust and competition laws. Further, he will also implement stringent tax treatment against Amazon.

Trump also accused the company for not paying internet taxes and causing loss of jobs in many cities and towns of the United States.

Additionally, he claimed that The Washington Post, which is owned by Jeff Bezoz (CEO of Amazon), publishes fake news and has been extremely critical of his administration.

What’s Ahead?

Trump’s attacks have been successful in creating panic among investors, which is reflected by the plunge in share price. Following the latest tweet, Amazon has lost $45 billion in market capital.

Amazon shares have lost 13.5% in the last couple of weeks, as compared with the industry’s decline of 11.3%.

We believe Trump’s likely attempts to regulate Amazon will face significant hurdles including prolonged lawsuits, which may not bode well for the stakeholders.

Nevertheless, investors should take note of the company’s growing prowess in the e-commerce and cloud computing market driven by well diversified product portfolio and strategic acquisitions & partnerships. We believe growing customer base will continue to drive top-line growth in 2018.

 


 

Strong Product Portfolio – Key Catalyst

Amazon’s portfolio comprises several products across various sectors such as food retail, grocery, home automation, cloud, video and music streaming.

It has expanded its online grocery business with the acquisition of Whole Foods last year. Moreover, the recent acquisition of Monoprix has strengthened its footprint in Europe, which is likely to bring in more customers to the platform.

With the acquisition of Blink and Ring, the company successfully entered the market for home automation products.

In cloud market, Amazon Web Services (AWS) is witnessing growing clientele with GoDaddy being its latest client. Other important clients are Adobe, Airbnb, Spotify, BMW, Air Asia, Rovio Entertainment and many more. Notably, the company held 62% of market share last quarter.

Amazon Prime is one of the significant growth drivers. The subscriber base is improving day by day aided by its robust movies and web series portfolio and solid loyalty system. Last year, there were more than 5 billion shipments worldwide which took place via Prime.

We conclude that Amazon’s strong focus on business diversification will help it to sustain momentum and will drive its top-line growth.

 

Zacks Rank & Stocks to Consider

Currently, Amazon carries a Zacks Rank #3 (Hold).

Investors interested in the broader technology sector can consider Stamps.com , Match Group (MTCH - Free Report) and PetMed Express (PETS - Free Report) . While Stamps.com and Match Group sport a Zacks Rank #1 (Strong Buy), PetMed Express carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Stamps.com, Match Group and PetMed Express is currently pegged at 15%, 12.5% and 10%, respectively.

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