Now think about the societal impact of Amazon against retail. Brick-and-mortar stores occupy physical space on major streets and highways throughout cities and throughout America. They contribute to the value of real estate, they employ workers in the local area, and they generate sales taxes for cities, counties and states. Efforts are underway to make Amazon pay more of their fair share in taxes, but in many cases this is somehow left as the responsibility of buyers. Amazon solely owns warehouses, but this allows no new real businesses to pop up because people aren’t going to the warehouses to shop. Amazon employs more than 100,000 workers.
Amazon Prime is another issue entirely, with free media and free two-day shipping. Amazon lost money on this with many of customers before the latest price hike that grandfathered the $79 per year fee for existing users. Amazon will still lose money on this with many of its customers after the price hike to $99. How many items have to have free shipping to eat into $20?
So, what does all of this add up to? Amazon’s stock price fell by 9.6% to $324.01 on Friday and it did so on four times the normal trading volume. With a market cap of $149 billion today, this means that the stock market sent Jeff Bezos a punishment bill of about $15 billion.
On top of the reaction, Amazon’s stock was downgraded at many firms. Merrill Lynch, Canaccord Genuity, B. Riley, Raymond James, RBC Capital Markets and many others either downgraded Amazon’s formal rating or they lowered their price targets.
Now think about this — Amazon’s stock price of $324 (down from a peak of over $400) is still worth about 150 times expected 2015 earnings per share. Investors are literally forced to pay 150 years worth of earnings, for a company that has been public for more than 15 years.
In the end, this is not about one company. It may be about our society. Consumers flocked to Walmart and its low prices in the last generation without a care about the impact on the communities. Now Walmart is in the news almost every single day for its labor relations and low wages.
So, what does this say about society now? Is society really going to let Amazon get a large portion of anything in the retail market that can be shipped, and lose money doing it?
The verdict as of Friday is that Amazon is still a great company but one that it may not be a great stock. If Amazon decides to become profitable then the sky is the limit. If it wants to keep kicking the profit can down the road from 2016 to 2020 and then to 2025, investors may start to steer way clear of a company that wants into everything but is willing to lose money for a decade at a time.
If Amazon doesn’t start to show that it can make money in each of its operations without disrupting existing business segments, the IRS might want to consider making Amazon change its .com to .org.