Amazon (AMZN) stock has room to weather the bad fake reviews the online retailer is trying to snuff out, but brand preservation is priceless.
Amazon is suing more than 1,000 people who are allegedly selling fake Amazon reviews of products — mainly five-star fake reviews — on service platforms like Fivver.com, where account holders offer odd-ball work for $5 and up.
Amazon is targeting some of these posters offering fake reviews, although the account holders’ identities are obscured and listed as “John Doe” on Amazon’s filing.
The removal of fake Amazon reviews may arguably boost business with improved customer confidence, but Amazon’s move to eradicate them is more about preserving its brand and not necessarily to preserve its profitability or boost AMZN stock.
After all, this is a company that earned $23.2 billion in second-quarter revenue, up 20% from $19.3 billion a year prior. Amazon unexpectedly reported a profitable second-quarter with net income of $92 million, a surprise that sent AMZN stock up 18% in reaction that after-hours session. The company arguably suffers more from currency fluctuations amid a rising dollar than it does from fake Amazon reviews.
Besides, AMZN stock is doing just fine right now. Amazon shares are up 85% year-to-date with AMZN stock trading near the top of a 52-week range.
AMZN Stock Has Nothing to Worry About Here
Amazon’s terms do specifically ban fake Amazon reviews, and clearly the company wants to make sure those rules are enforced as much as possible. Amazon is suing for breach of contract and for a violation of consumer protection laws, saying those reviews are misleading.
When it comes to making money, Amazon certainly has much bigger fish to fry than squashing out fake reviews to boost sales. Instead, Amazon is focused on business efforts like its recent new partnership with Shopify, which Amazon said last month will be its preferred migration provider for Amazon Webstore merchants.
Amazon has been busy introducing a new gaming-ready Fire TV set top box and a new Fire tablet for under $50, both of which it launched last month.
Amazon’s true focus is in those proactive technological innovations combined with defensive moves such as recently banning the sale of Apple’s (AAPL) Apple TV and Alphabet’s (GOOG, GOOGL) Chromecast streaming devices so its own Amazon Fire Stick sales can better thrive.
Online customers have long learned to take product reviews with a grain of salt, so Amazon’s aggressive stance against them is less about saving customers and more about maintaining policy and a sense of cleanliness with the website’s retailers. It’s not a move to shore up sales.
Amazon is set to report third-quarter earnings Oct. 22, with the Street expecting a loss of 13 cents per share and revenue of $24.9 billion, according to Thomson Reuters estimates.
The bottom line is, when deciding whether to invest in AMZN stock, focus more on the company’s financials and technology strides and less on sideshows like lawsuits over fake Amazon reviews.
As of this writing, Rebecca McClay held shares of GOOG.
