There’s no two ways about it — President Donald Trump’s recent verbal assault on e-commerce giant Amazon.com, Inc. (NASDAQ:AMZN) has been interesting. More bark than bite? Sure. Although Amazon stock has suffered as a result, a level-headed look at the matter makes it pretty clear that the White House doesn’t actually have a lot of legal leverage here.
Or does it?
Calling a spade a spade, deeming Amazon a monopoly and pursuing it under antitrust rules is too tall of an order; a proverbial snipe hunt. As antitrust attorney Amy Ray, partner with Cadwalader, Wickersham & Taft, Amy Ray, partner with Cadwalader, Wickersham & Taft recently explained:
“I wouldn’t take his tweets to be directly relevant to whether independent antitrust enforcers would decide to bring a case. It’s just that under U.S. law, it’s just very difficult to bring successful unilateral conduct, exclusionary, predatory conduct cases to court, and win them.”
That’s not to say Trump couldn’t create a serious headache for the company though. Here are the top three weapons Amazon stock owners don’t want to see the president pull out.
1. Imposing new tariffs
It’s already happened, though now yet in a way that makes life too much tougher on Amazon.com. That is, the White House has imposed new import tariffs on goods coming into the United States for sale to its consumers and companies.
The first round of border taxes from early March mostly took aim at steel and aluminum… something Amazon.com doesn’t exactly sell. The most recent batch of tariffs hits a little closer to home though, as it includes things like flat-screen televisions and toys.
Other retailers, online and offline, will face the same tariffs, so nobody will find a price advantage. But, Amazon’s paper thin profit margins could easily turn negative if it’s forced into an even hotter price war.
A few more new import levies could really wreak havoc with Amazon’s North American retailing operation.
2. Upping privacy laws, options
Most consumers have already abdicated their personal privacy, realizing that the price for the ‘free’ services offered by Facebook, Inc. (NASDAQ:FB) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) is detailed information about their lives. Though Amazon.com isn’t ‘free’ per se, to enjoy the convenience and low prices it offers, that’s still the price that has to be paid.
What if, however, lawmakers actually stopped talking about it and started acting on the oft-discussed need for greater consumer protection in terms of the data collected and stored about them?
It’s not exactly clear what legislation aimed at shrinking its digital profile of its customers would look like. Several different ideas to that end have been floated, with most of them shot down, largely thanks to lobbyists.
But, in that Amazon’s power over you is the result of knowing you better than you know yourself, any culling of that mountain of data could make the company less effective at marketing to you.
3. Pointing out actual cash flow
Finally, this is an idea that was touched on in early January, but can be reprised and fleshed out more now: Amazon.com isn’t actually cash-flow-positive if you take into account all of its expenses.
Long story made short, the way Amazon is financing all the equipment and hardware it needs to make Amazon Web Services the beast that it is somewhat obscures the actual cost of keeping it up and running. Classified as lease principal repayments and assets acquitted under capital leases, factoring those costs in leads Amazon into the red in terms of cash flow.
Sure, it’s conceivable that the heavy spending Amazon.com is taking on today will more than pay for itself in the future. Amazon Web Services already has tremendous scale though, and arguably should be self-funding (and fully-funding) right now.
If Trump wanted to put pressure on Amazon.com CEO Jeff Bezos, he could do so by putting pressure on Amazon stock by pointing out this little detail to investors. Or worse, he could press for changing how certain purchases are expensed, and not let Amazon move these investments around on their accounting statements.
Bottom Line for Amazon Stock
These are all just possibilities, of course. And, while Donald Trump has made threats of all sorts on multiple fronts, it’s become clear his weapon of choice is talk rather than legislation.
Nevertheless, never say never. It looks like the trade wars have begun in earnest, and there’s no denying Trump’s got an ax to grind with Bezos. Current and potential owners of Amazon stock would be wise to keep their finger on the pulse of the three possibilities laid out above, as they’d each be much tougher for Amazon.com than any antitrust or regulatory effort would.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.