A Trump presidency might not be the best thing for Amazon.com, Inc. (NASDAQ:AMZN), but neither should it be as bad as recent action in AMZN stock would suggest.
Amazon stock has slumped about 7% since its Tuesday close and it’s easy to understand why. CEO Jeff Bezos and Donald Trump aren’t exactly the best of buddies.
Bezos owns The Washington Post, which dedicated heavy resources to investigate Trump during the campaign.
Bezos also offered to shoot Trump into space with his Blue Origin spaceflight company. Trump responded by saying Amazon.com, Inc. has an antitrust problem and would be in trouble under his administration should he win.
Those threats are probably overblown, and besides, Amazon doesn’t have antitrust issues. AMZN is the largest e-commerce company, but consumers still have legions of choices when it comes to making purchases online. It also dominates the market for cloud-based services, but it’s hardly the only provider.
True, Trump could cause problems for Amazon.com, Inc. by forcing the company to collect sales tax in all 50 states. And AMZN stock has the same worries as every other importer when it comes to the potential for trade friction with China and other countries.
These are certainly new risks to Amazon and they need to be respected, but they don’t change what is an otherwise bullish investment thesis on Amazon stock. Cowen and Company analyst John Blackledge summed up the bull case like this on CNBC:
“I don’t see any disruption in their business. They are crushing it on the e-commerce side both domestically and internationally. The growth in the Prime customers has been great, the growth in their units and their e-commerce business have accelerated at scale over the past year … We look at this as a buying opportunity. [R]ight now, the stock’s trading at 15 times next year’s Ebitda. This is for a company that’s seeing accelerated e-commerce growth doing a billion dollars in revenue at massive scale, with huge consumer demands as we head into the holidays and the next year or so. We remain super bullish on Amazon and think this is just a blip in the road.”
AMZN Is More Than E-Commerce
As well as the company’s consumer-facing businesses are doing, there ace up the company’s sleeve is cloud-based services. As we saw in the most recent quarter, Amazon Web Services continued to drive the upside.
Click to Enlarge The company’s cloud-based services operation delivered almost all of the operating profit from Amazon.com, Inc. and yet still accounts for just 10% of total revenue.
Operating profits from the cloud now dwarf the income churned out by the company’s e-commerce segments.
And the free cash flow it helps fuel Amazon’s always ambitious expansion plans. Now consider that this is a business that looks like it’s only just getting started.
On a technical basis AMZN should have limited downside from here. It failed to find support at its 50-day moving average at the end of October and disappointing earnings only added to the downside momentum.
AMZN stock, however, rarely falls through its 200-day moving average. The last time it did so in early February the technical breach was short-lived. Based on the 200-day MA, AMZN should have a floor around $690 — if it even gets that far. Amazon.com, Inc. is entering oversold territory, which is a place it rarely visits and never stays for long.
As we’ve noted before, any drawdown in the Amazon stock price should be embraced. It’s a high-quality stock with an outstanding growth rate for a company its size. The cheaper it gets, the better a buy Amazon.com, Inc. becomes.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
