Amazon.com, Inc. (NASDAQ:AMZN) has been the center of a number of major headlines over the past few months, and almost all of them have added to bull case. In fact, I don’t believe anything will happen in the short-term that will prove an obstacle to AMZN stock going forward.
But that doesn’t mean it can’t happen. And part of the optimism around Amazon hinges on how quickly it can achieve all the things it’s setting out to do.
The biggest initiative, of course, is Whole Foods. Amazon’s suddenly improved positioning into the grocery market could be one of the biggest drivers of AMZN stock moving forward, so let’s take a much closer look at what could possibly keep it from happening.
First we have the purchase of Whole Foods Market, Inc. (NYSE:WFM). We’ve learned that Amazon basically told WFM to either take the $42 per share offer or leave it. It was really the only way CEO John Mackey could keep his job, so he had to take it.
However, there are discussions that Costco Wholesale Corporation (NASDAQ:COST) might make a play for Whole Foods.
Costco’s numbers over the past 12 months haven’t been terrific, and I personally think COST stock is overvalued. But that’s not why we’re here. We’re asking if Costco has the ability to do it, and it does, with $4.75 billion in cash and just $4 billion in debt. We’re also asking if a competitive acquisition makes sense. I think it does for a couple of reasons.
First of all, Amazon has become a competitor to Costco in several categories already. I cancelled my Costco membership years ago because all the things I bought there, I could buy on Amazon …and have them shipped for free via Prime in two days. It saves me the trip and the checkout lines. Not only that, the pricing is comparable.
By grabbing Whole Foods, Amazon takes a big step forward in food and food delivery. Now Costco has some pretty darn good food, but Amazon could potentially match or trump it with the acquisition.
But let’s consider the worst-case scenario. Even if Costco somehow swooped in with an offer that lands it Whole Foods, Amazon could simply pivot to Sprouts Farmers Market Inc (NASDAQ:SFM) and for all we know, it could grab The Fresh Market from its private equity owners, and do it for less than the cost of WFM.
It’s not a perfect solution, but Amazon has options. I think Costco knows that, which is why I think Costco ultimately won’t try to stop the deal.
Could the Government Take Down AMZN Stock?
There’s also been some chatter about the U.S. government blocking a deal between Amazon and Whole Foods. I think this is nonsense, too.
The short argument goes like this: Trump hates Jeff Bezos because the Washington Post reports negatively on Trump all the time. Also, Amazon is just getting too darn big and there is “antitrust concern.”
If you’ve ever watched House of Cards, you know this is just chatter. People are rattling sabers to fit various agendas that the public will never know about. As far as Trump vs. Bezos, Trump’s target right now is the mainstream media, particularly CNN. We’ve heard all about how the government might spike the AT&T Inc. (NYSE:T) of Time Warner Inc (NYSE:TWX) because of CNN and President Jeff Zucker. That’s ridiculous, because there is no logic or precedent to block a media merger like this — studios have changed hands numerous times under different conglomerates. Also, Trump wants Zucker out, and so will AT&T.
So the idea that Trump will somehow launch an attack on Bezos — one of the country’s most powerful businessmen — is ridiculous.
There’s little real meat to the antitrust argument. We aren’t talking about Windows owning 90% of the market. We’re talking about Amazon buying one relatively tiny grocery chain of a few hundred stores amidst tens of thousands of other ones. It isn’t a monopoly in the grocery store sector!
So Amazon sells just about everything? So what? It owns pieces of markets. That’s it.
What does this mean about AMZN stock going forward. It means that Amazon doesn’t need any acquisitions to keep up the dominance it has. Whole Foods is a drop in the bucket.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.