Amazon.com, Inc. (NASDAQ:AMZN) has been growing exponentially over the past 20 years as it took over more and more market share and began expanding its services into new arenas. Over the past year, the Amazon stock price has risen 17%, but investors are beginning to question whether or not shares of Amazon stock have reached their plateau.
Source: Mike Seyfang via Flickr
While the firm still has many draws that make it a solid investment, AMZN is certainly facing some headwinds in the coming years that are worth considering before adding Amazon stock to your portfolio.
Pro: The Amazon Ecosystem
However, while competition is certainly a headwind as Amazon continues to grow, the company has been working to provide customers with a variety of benefits in order to hook them into the Amazon ecosystem.
Much like Apple Inc. (NASDAQ:AAPL) has done, AMZN has created a line of devices, services and benefits that make it worthwhile for customers to choose Amazon over competitors even when prices lean in another firm’s favor.
Amazon offers Prime membership, which the firm has been working to make more and more enticing each year. At the moment, customers enjoy fast, free shipping, movie and TV streaming and a new unlimited kindle borrowing library. The firm will also make it’s grocery delivery service, AmazonFresh, available to Prime members for a reduced rate and the company has rolled out a personal assistant device, dash buttons and a tablet that all work within Amazon’s network.
Pro: Trump’s Anti-Trust Remarks
Between disappointing earnings and Donald Trump’s election win, AMZN stock has lost over 7% over the past month. That’s great news for traders hoping to add the e-commerce firm to their portfolios, especially if they disagree with the masses over Trump’s potential effect on the stock.
AMZN lost nearly 3% in the days following the U.S. Presidential election because President-Elect Trump and Amazon CEO Jeff Bezos have been at odds over Bezos’ business practices.
Many see Trump creating more than a few problems for Amazon once he takes over as commander in chief. On the campaign trail, Trump criticized AMZN saying that the firm had antitrust problems, a quote that has been replayed by the media in the days following the election.
However, it’s unlikely that Amazon will ever face scrutiny in this respect because the company really doesn’t have an antitrust problem — U.S. consumers have a wide variety of choices when it comes to online shopping and this threat has been widely overblown.
Pro: The Cloud
One of Amazon’s biggest draws is the company’s future prospects.
This is especially true when you consider cloud computing, where the firm has already established dominance in the market. Amazon’s cloud computing arm, Amazon Web Services, has the largest cloud computing capacity being used in the market, a big plus for Amazon stock as the industry is set to grow exponentially over the next few years.
Being a well-established player so early on is advantageous because it means that Amazon is the most experienced in the space. Amazon’s success in other areas, like e-commerce, has helped the firm refine its services and ensure it is offering a good value to its customers.
The firm recently partnered with VMWare, Inc. (NYSE:VMW) in order to make it easier for customers to use both services seamlessly, something that will likely help Amazon stock retain its place at the top despite growing competition in the industry.
Con: Amazon Stock vs Walmart
Amazon’s competition-crushing ways make the retailer out to be an untouchable force steam-rolling the market. While there is no argument that when the company first started grabbing marketshare it took the retail space by storm, other brands have certainly begun to catch up.
Many believe that discount superstore Wal-Mart Stores, Inc. (NYSE:WMT) has been eclipsed by Amazon for good, but you’d be naive to think that WMT will roll over.
On the contrary, Walmart is a force to be reckoned with, and AMZN may feel the effects of WMT’s size and scale in a head-to-head battle. As Amazon builds out its grocery-delivery service, Walmart’s own online grocery shopping options will make it harder to grab marketshare.
Walmart is also in the midst of completely reworking its online offerings in order to compete with AMZN, and the firm’s existing infrastructure makes it a worthy advisory. Not only does WMT have an extensive network of physical stores where customers can pick up their items, but the firm also has more than 170 distribution centers that are already up and running.
Con: A Fickle Market
Amazon hasn’t been known for stability when it comes to earnings, and the company’s ability to turn a profit has been shaky at best. That makes AMZN stock a dangerous one to hold, especially in the event of a recession. The market is unlikely to pardon it if macroeconomic conditions take a turn for the worst, and Amazon’s business will likely take a sizable hit.
While Amazon initially made its name as a low-cost option, the firm’s focus on making Prime desirable has shifted its focus to convenience rather than price. That means that for many Americans, Amazon is a “want-to-have” rather than a “need-to-have.” If a recession does weigh down on the U.S. economy — which is likely considering that America has seen nearly a decade of expansion — Amazon memberships will be one of the first cuts that Americans make as they rein in their spending.
Con: Trump Taxes
While Trump’s antitrust threats were probably empty, worries about the President Elect’s tax plans are not overdone.
Amazon may have a big problem if Trump decides to make changes to the tax law because it will make the firm’s products more expensive.
At the moment, Amazon only has to charge taxes in certain states, but the firm may be forced to charge a sales tax in all 50 states, something that would make its products more expensive and may push consumers to shop in competing stores.
As of this writing, Laura Hoy was long AAPL.
