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Amazon.com, Inc.: Why AMZN Should Have Kept Quiet

Amazon is indeed making a splash in the business supply market, but could this news affect the potential Office Depot-Staples merger?

   

If one didn’t know any better, it would be easy to assume Amazon.com, Inc. (AMZN) was trying to taunt Office Depot Inc (ODP) and Staples, Inc. (SPLS).

Amazon.com, Inc.: Why AMZN Should Have Kept QuietThe endeavored merger of the two office-supply retailers — mostly inspired by Amazon’s expanding footprint in that space — recently hit a roadblock when the Federal Trade Commission sued to prevent it, citing an already-significant lack of competition within the office supply market.

Staples and Office Depot jointly counter that the combination of their organizations would actually improve competition, since neither of those organizations on their own can stave off the growing monopolistic hold Amazon is quickly securing.

So far, the FTC’s case holds a little more water. That argument may have been weakened on Wednesday, however.

AMZN Is Not Just for Consumers Anymore

The taunt in question isn’t a taunt per se. But, sometimes an ill-advised disclosure at an ill-advised time ends up acting as a taunt.

The disclosure? Since Amazon launched its office supply e-commerce site Amazon Business a year ago, it has generated more than $1 billion worth of sales. Most owners of AMZN stock will know $1 billion in revenue is only a drop in the bucket relative to the $107 billion worth of revenue the whole company has generated over the past four reported quarters.

But, considering it’s a new venture that (frankly) hasn’t been particularly well publicized, the future potential of Amazon Business is a head-turner … particularly for those handicapping the FTC’s efforts to bar the proposed pairing of Staples and Office Depot. See, so far, Amazon Business has grown at a pace of 20% per month.

Most goods available through Amazon Business are also available at its general e-commerce storefront. There are some exclusives though, and perhaps more important, bulk discounts and business-friendly logistics are offered. The end result: More than 30,000 vendors have sold business supplies to more than 300,000 customers via Amazon Business.

More growth is likely on the way, too. Forrester Research believes Amazon will own 12% of the business-to-business market in the United States by 2020.

For perspective, the office supplies and equipment market is worth more than $8 trillion per year in the United States alone.

Bad News or Good News for the Merger?

There’s nothing specific about the revenue tally thus far that attorneys for Staples and Office Depot could hold up as proof that Amazon is indeed an overwhelming force within the world of business supplies, and as such, must be countered — for the sake of consumers — by any means necessary. One of these means, of course, includes the less-than-ideal choice of letting the last of the two major office supply retailers team up.

On the other hand, with a court system that has recently been leaning back towards a certain degree of common sense and away from the perfect (and often ridiculous) letter of the law — you can mostly thank Vringo, Inc. (VRNG) and Omnicare, Inc. (OCR) for that — Staples’ and Office Depot’s lawyers would be wise to point to the growth Amazon touted today. They’d be wise to further point out where it’s going.

Amazon IS gaining a foothold in this market, and if allowed to carry on unchecked, Amazon Business could become the very monopoly the FTC is trying to prevent.

And there’s the rub. Do we trust Staples and Office Depot to not raise prices when they own a retail monopoly, all in the name of remaining competitive with Amazon? Or, with one less source to choose from, will one major online and one major offline supplier actually keep each other’s prices honest in a way that two different brick-and-mortar suppliers couldn’t keep the one online powerhouse in check?

If it’s any consolation, the judge hearing the FTC’s case, U.S. District Judge Emmet G. Sullivan, is struggling to find answers to those questions as well.

Bottom Line for AMZN

In the grand scheme of things, Amazon’s public celebration of its success with Amazon Business likely won’t alter the court proceedings much, if at all.

Nevertheless, crazier things have happened … even outside an episode of Matlock. Perhaps the best thing Amazon could have said was nothing at all, rather than draw attention to success that might have a chance at swaying otherwise-favorable opinions (for Amazon) in a courtroom.

Whatever the case, add Amazon’s new venture to the list of things the company is getting right, and hold promise.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/05/amzn-stock-amazon-quiet/.

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