When it comes to Amazon.com, Inc. (NASDAQ:AMZN), there are two distinct sides of the online auction and e-commerce leader coin. Side one: About to gobble up Whole Foods, some protestors fear what Amazon’s new force will do to the competition. Is Amazon about to bring forward a ruthless threat to the economic atmosphere? Side two: A giant veering on a precipice of costliness and vulnerability; the same company that disappointed on its last quarterly earnings tumble. Is now a poor time to invest in shares after all?
Argument A: The Amazon Dynasty Sharpens its Competitive Sword with Whole Foods Deal Approval
As of yesterday, Federal Trade Commission voted approval on Amazon’s acquisition of Whole Foods after the intent was first revealed back in June. Likewise, shareholders of Whole Foods said yes to the deal.
There had been legal qualms as to whether the $13.7 billion collaboration would fall under an anticompetitive umbrella. Advocacy group Consumer Watchdog cried allegations of hoodwinking consumers regarding discounts.
Then, the United Food and Commercial Workers International Union and its 1.3 million retail workers hopped on board the “retail monopoly” train, calling out a dangerous menace afoot that will wipe out Whole Foods jobs. Could this deal bring about the devastation of the American economy in a string of mass supermarket shutdowns?
Union president Matt Perrone believes this alliance could evolve into a commercial nightmare and pleaded with the FTC to think twice before green-lighting the merger. Perrone argued physical location of Whole Foods grocery stores would not make a difference when considering Amazon’s deathly one-two punch of online model-meets-mammoth-size would suddenly put “every single grocery store” under the online auction and e-commerce leader’s domestic bull’s eye.
Acting director of FTC’s Bureau of Competition Bruce Hoffman says to the Amazon antagonists not to worry: “Of course, the FTC always has the ability to investigate anticompetitive conduct should such action be warranted.” Yet, the economic arena is surely trembling with the knowledge that Amazon and the organic-foods grocer are officially joining arms. Power could be ripe for Amazon’s taking.
Argument B: Amazon as the Roman Empire, Primed for a Fall
Could this powerful giant be susceptible to weakened momentum? Evercore ISI technical analyst Rich Ross suspects that even a stock seemingly poised for global takeover could be at risk of tripping into a cautionary tale. Now is not the time to buy, contends the analyst, sounding the alarm that “this stock is in a vulnerable technical position.”
According to yesterday’s “Power Lunch” on CNBC, Ross finds that Amazon is exposing “classic signs of exhaustion,” with the online auction and e-commerce player “sitting on key support at $950 in the short term — below which could test that 200-day [moving average] down around the big round number at $900.”
Juxtaposed against the FANG sector a.k.a. the leading tech giant stocks that comprise of Facebook, Apple, Netflix, and Google, under Ross’ careful eye, Amazon comes across as, bluntly put, “very un-FANG like.”
Breaking down the past five years of Amazon’s performance, Ross underscores that in three of the five, “the stock has had 30 percent pullbacks,” adding, “That’s not the base case here, but with the stock just 10 percent off an all-time high going into the worst month for stocks historically, I would not be a buyer.”
So in what case would the analyst be willing to buy Amazon shares? “I would be a buyer lower — down around $900, $870,” explains Ross.
S&P Global portfolio manager Erin Gibbs also spoke yesterday on CNBC’s “Power Lunch and he echoes Ross’ cautious sentiment, highlighting the aftermath of the company’s second-quarter print- where the company may have outclassed on revenue, but dramatically came up short on earnings: “Not only did they massively miss expectations for their profit on second quarter, but the expectations of what they’re going to make over the next 12 months has been almost cut in half.”
The question for this side of the Amazon coin is not one that dismisses the company’s high standing across the globe- rather, the query places a spotlight on whether looming expenses are nipping too closely at this giant’s heels. Gibbs believes that ultimately, “It’s not that they’re not making revenues — they’re still taking over the world — it’s just way more expensive than they originally thought. And so technology costs and marketing costs are both significantly higher.”
As such, the portfolio manager would not be surprised to see more downside potential challenging the company, asserting, “I’d say we could see more of a decline until we see some stabilization of those costs.”
The stock is soaring 28% higher for 2017 thus far, and with a nod from the FTC and Whole Foods shareholders alike, the company’s teeth appear to be sharper than ever to sink into market gains.
When it comes to Wall Street’s bet, the odds are on this e-commerce player, with TipRanks analytics showcasing AMZN as a Strong Buy. Out of 32 analysts polled by TipRanks in the last 3 months, 30 are bullish on Amazon stock while 2 remain sidelined. With a return potential of nearly 25%, the stock’s consensus target price stands at $1,177.44.
What are your investment thoughts: Is this giant towering too tall to the sky?