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Will Regulation of Amazon (AMZN) in India Throw Off the Company’s Stock?


Amazon stock is slowly recovering after a slow decline throughout the fall. Meanwhile, the Indian government has changed up the rules for Amazon (AMZN) – adding regulations for e-commerce in the foreign direct investment sector.

Baird top analyst Colin Sebastian says the changes will temporarily slow the growth for AMZN and other foreign-owned marketplaces – but that overall, the platforms will adapt with limited long-term risk to the leading market positions. While Sebastian has varying ideas about what the future will bring, he is overall bullish on the stock, reiterating an Outperform rating with a price target of $2,100.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, 5-star analyst Colin Sebastian has a yearly average return of 18.4% and a 63% success rate. Sebastian has a 40.9% average return when recommending AMZN, and is ranked #35 out of 5,092 analysts.

The changes will become effective on February 1. That’s when the Competition Commission of India will begin enforcing regulations to keep online marketplaces from creating exclusive relationships with merchants. Currently, smaller online markets in India have expressed they feel threatened by the market share from Amazon and Flipkart. Sebastian, however, mentions the 2019 Indian election that is upon the nation, suggesting the regulation may be politically motivated. Regardless, Sebastian thinks the changes will surely make the market more competitive and may even open a window for Alibaba to make a “more direct move into the market.”

“In the near-term, we expect some operational challenges as Amazon unwinds its stakes in some larger sellers (e.g., Cloudtail), pursues additional sources of product listings, and ends exclusive deals and aggressive product discounting. Meanwhile, domestic marketplaces such as Snapdeal (partly owned by Alibaba) and ShopClues could benefit near-term during a transitional period with additional seller activity and product selection with less pricing pressure. We also expect a new community of sellers to develop to serve Amazon and Flipkart in order for foreign marketplaces to comply with diversification requirements while still maintaining adequate product selection,” the analyst concludes.

Despite weakness in the market and the news about new regulations, analysts are holding on to their positions. The consensus rating of “Strong Buy” comes paired with a consensus price target of $2,150, which shows an upside of about 46%. (See AMZN’s price targets and analyst ratings on TipRanks)