2016 was full of events which one will not quickly forget and it seemed appropriate that the year would not end before handing the world one final twist. On November 9th, Donald Trump won the US presidential race which sent out shockwaves that reverberated all around the world.
During his presidential campaign, Trump often criticised Jeff Bezos, the founder, chairman and CEO of Amazon, claiming that he supports anti-competitive policies which led to the e-commerce industry becoming a monopoly market controlled by Amazon and is responsible for the outsourcing of numerous American jobs.
However, no monopoly market behaves efficiently and instead artificially inflates the prices of a quantity of goods which is well below the efficient quantity. This leads to allocative inefficiency and destroys competition within the market. During his presidential campaign, Donald Trump said that Bezos has “a huge antitrust problem because he’s controlling so much, Amazon is controlling so much of what they are doing.”
Trump was adamant that he would correct this “excessive” power which Amazon held if he was to win the race to become the 45th President of the US and investors are well aware of this. What was dubbed the “October surprise” by many news outlets – the point in mid-October where polls suggested that Trump’s popularity with voters had been greatly underestimated and a surprise victory for Trump became a real possibility. This news had a major negative impact on Amazon’s share price as can be seen in the chart below.
Almost immediately after his unlikely victory, there was another major selloff of Amazon shares as investors’ concerns that the new President-elect would implement policies which would negatively affect Amazon grew. The result was that the Amazon share price (which had increased by 32% since the beginning of the year) fell by almost 9% in a matter of days.
- (Source: TradingView)
The sheer size of Amazon and its business operations are phenomenal. Sales of $128bn in 2016, across 12 different sub-networks, and the fact that it ships 35 items every second comfortably make Amazon one of the most valuable companies in the world. A relatively high current ratio (current assets/current liabilities) for a company of its size – 1.10 – shows that Amazon has good short-term liquidity and its debt/equity ratio of 0.46 shows that debt in the long term should also not be a cause for concern.
Amazon’s dominance over the e-commerce is clear as it captured almost 50% of all the US e-commerce sales for the week ending December 17th, 2016 (according to Slice Intelligence), and broke single day sales records for both Black Friday and Cyber Monday according to Adobe Digital. This, in addition to the general movement away from bricks and motor purchasing and the acceleration toward e-commerce sales, certainly makes Amazon an attractive potential investment.
A Solid Growth Plan
It was recently announced that Amazon will add 100,000 full-time US jobs in the next 18 months. This is seen as a tactical move, in an attempt to ensure Trump is more lenient with his policies. However, not all of Amazon’s fundamentals are as attractive as those stated above. The company currently has a price-to-earnings ratio of 186.40 for the trailing 12 months which may indicate that the shares are overvalued (but may also mean investors are expecting higher earnings growth in the future).
Trump’s social network activity, especially his use of Twitter, has had a substantial effect on various corporations’ share price. As a direct result of a tweet posted by Donald Trump regarding his intentions to stop Toyota from moving its operations to Mexico, Toyota lost $1.2bn in value within five minutes.
Not An Isolated Example
This is far from a freak occurrence – aeroplane manufacturer Boeing lost $1bn off its share value shortly after Trump tweeted that the company’s government contracts were “out of control.” One can assume that his online antics will subside once his inauguration has officially taken place and that Congress will be able to prevent him from implementing any outlandish policies which are purposefully meant to be harmful to a particular company. However, with a character as large as Donald Trump, it is impossible to say for certain.
Amazon is due to report its fourth quarter earnings on January 26th and, with many analysts predicting them to be better than estimates, this may be the catalyst which further strengthens the company’s current upward momentum.
However, many investors also worry that Amazon is one tweet away from crashing and having more than a year’s worth of growth erased.