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Amazon (AMZN) Bounces Back From Trump's Bitter-Tweet Saga

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The Twitter spat between President Donald Trump and Amazon.com, Inc. AMZN shows no signs of ceasing. Incidentally, the e-commerce giant's shares have tumbled almost 7% over last week. However, it seems investors are a tad too tired of this Twitter tussle, as the stock ended Tuesday's trading session 1.5% higher even though Trump once again came lashing down on Amazon on the day.

Trump's dislike for Amazon and its CEO Jeff Bezos goes back a long time. He has time and again said that the United States Postal Service (USPS) is losing billions of dollars every year by charging the likes of Amazon and others a pittance to deliver their packages. Also, the President believes that the country's tax-paying retailers are shutting stores due to Amazon's relentless onslaught.

However, the recent decline in Amazon's shares may not entirely be out of fears that the President will come down heavily on the company in the days to come with Internet taxes. In fact, the entire tech gamut has witnessed a sharp decline since Facebook, Inc.'s FB data misuse scandal came to light, sparking fears of a regulatory clampdown on major players. The heavy selloff may also be a result of investors trying to rebalance their portfolio before going into the first-quarter earnings season.

Amazon Bounces Back Despite Trump's Tweets

Trump has long been critical of Amazon's business policies. On Mar 28, Amazon's shares plummeted almost 5% after news website Axios reported that Trump wants to take on the company's growing powers and tax treatment. The report also erased $30 billion of Amazon's market capitalization.

Trump continued lashing out at Amazon with another tweet over the weekend, which saw its shares declining further on Monday. And since last week when Amazon actually entered the President's bad books, its shares have fallen almost 7%. If this is not enough, the stock has tumbled 13% from the all time-high it achieved in mid-March.

Tuesday's trading was a welcome break for Amazon. The stock bounced back and closed 1.5% higher on the day, despite another tweet from Trump that alleged Amazon of "costing the United States Post Office massive amounts of money for being their Delivery Boy." Perhaps, Trump's tweet could not dent the confidence of investors this time, as they are getting a bit tired of the ongoing feud.

Washington Post at Heart of Tussle

Trump's dislike for Amazon can be traced back to his bitterness toward Bezos, who also owns Washington Post that has been quite critical of the President and his policies. Trump has often criticized Washington Post and on one occasion, misleadingly referred to it as "Amazon Washington Post." A tweet by Trump, last year, read: "The #AmazonWashingtonPost, sometimes referred to as the guardian of Amazon not paying Internet taxes (which they should) is FAKE NEWS!" Trump considers both Amazon and Washington Post to be a single entity which isn't the case, according to Bezos.

That said, despite bashing Amazon time and again for its tax treatment, Trump is yet to do anything concrete. So much so, that post the Axios report, White House press secretary Sarah Huckabee Sanders denied that the administration was planning anything against Amazon. "We have no announcement and no specific policies we are pushing for," Sanders said, related to Amazon. Understandably, the decline in Amazon's shares has been guided by a number of other reasons than just Trump's tweets.

Tech Sector Takes a Hit, FAANG Stocks Fall

The tech sector, which has been driving the market so far this year and flourished in 2017, took a hit immediately after Facebook's data misuse scandal came to light. The company's shares tanked 6.8% on Mar 19, its worst decline in four years. The week saw the entire technology sector suffering with fears of a regulatory clampdown on major tech giants and possible summons for congregational hearings by the Senate. FAANG stocks, comprising Facebook, Amazon, Apple, Inc. AAPL , Netflix, Inc. NFLX and Alphabet Inc. GOOGL , suffered through the week.

Notably, Amazon is essentially a consumer discretionary stock. But due to its business style, it finds a place within the tech sector and is part of the FAANG stocks, which got embroiled in Facebook's data misuse scandal.

Moreover, the huge selloff may be attributed to the general tendency of investors to rebalance their portfolio before the start of an earnings season. Perhaps, this decline may be a general trend, as Amazon gears up to report its fiscal first-quarter earnings later this month. On this note, the e-commerce giant's stock witnessed its first round of decline much before Trump's twitter bash.

Is Amazon Really Paying USPS Less?

Trump feels that Amazon is making a fortune by not paying sales tax and the USPS is losing billions of dollars by charging the likes of Amazon a lot less. But Amazon cannot be completely blamed for this. In fact, the USPS has been incurring losses for quite a while now. USPS has lost $65.1 billion since 2007 and reported a net loss of $2.7 billion in 2017.

However, package delivery still remains one of USPS' strengths. Parcels fetched $19.5 billion in 2017, accounting for 28% of its annual revenues. Interestingly, of this $19.5 billion, companies like Amazon accounted for $7 billion in revenues.

Given that Amazon is the largest e-commerce company, it's expected that a huge chunk of this $7 billion comes from Amazon. An estimated 40% of Amazon's packages are shipped by USPS after negotiating on the discounted rates, much like it does with other shippers.

Now, USPS cannot price parcel deliveries for Amazon or any other entity below its cost, as the 2006 Postal Accountability and Enhancement Act, makes it illegal. Hence, Amazon is actually contributing to the biggest growth area of USPS, which is package delivery.

Moreover, if USPS in the coming days, increases it shipping charges, Amazon might make efforts to enhance its own delivery service wing, one of its biggest areas of strength.

In Conclusion

Amazon is the fourth-largest company in the world and has been one of the key players in driving the tech sector. Its recent decline on the bourses may not have stemmed entirely from Trump's tweets. Much like the other FAANG stocks, Amazon too has suffered since Facebook's data misuse scandal.

This means that stock fundamentals are undented and that Amazon remains a firm favorite among investors. Moreover, Amazon's shares have increased 53.5% in the last year and 17.1% year to date. Moreover, Amazon sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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