Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Grocery Wars

Does Amazon have too much money?

You can make the case that Amazon makes too much money.

For instance, Amazon (NASDAQ: AMZN) reported a quarterly gross profit of $33.46 billion; a quarterly operating cash flow of $19.659 billion, and a quarterly ending cash of $12.856 billion on 31 December 2019. Consequently, Amazon had $55.021 billion in cash and short-term investments on 31 December 2019.

Therefore, Amazon could buy Macy’s (NYSE: M); America’s largest department store operator for cash and have over $50 billion left. Mr. Market gave Macy’s a $5.016 billion Market Capitalization on 10 February 2020.

Additionally, Amazon could buy Kroger (NYSE: KR); America’s largest standalone grocer for cash and have $32.492 billion left. Mr. Market gave Kroger a Market Capitalization of $22.529 billion on 10 February 2020.

Is Amazon Too Powerful?

Therefore, we need to ask ourselves if we want any company to have that much power. In particular, Amazon is a company that builds its business on dead jobs.

On 5 February 2020, Macy’s announced it will close 125 stores and one of its two headquarters, NPR reports. Additionally, Macys plans to eliminate jobs or 9% of its workforce.

Macy’s expanded its store closing list by 95 stores. Macy’s had planned to close 30 stores but expanded the list to 125 after a dismal 2019-2020 holiday season.

Macy’s cannot compete with Amazon

In contrast, Amazon reports its revenues grew by 20.8% during 4th Quarter 2020. Thus, Amazon is destroying Macy’s business before our eyes.

One reason Macy’s is closing stores is that it has little cash. Macy’s reported $301 million in cash and short-term investments on 31 October 2019. That number fell from $674 million on 31 July 2019.

Therefore, traditional retailers such as Macy’s cannot compete with Amazon. This will lead many people to wonder if Amazon is too big.

Is Amazon Too Big?

Amazon (NASDAQ: AMZN) reported $87.437 billion in revenues for the quarter ending on 31 December 2019. In contrast, Macy’s reported $5.356 billion in quarterly revenues on 31 October 2019.

Those numbers will add fuel to the arguments that Amazon is too big and has too much money. Anti-trust advocates will seize upon those numbers to demand an Amazon breakup.

An obvious Amazon breakup is to spin Amazon Web Services (AWS) off. Another is to force the sales of Amazon Logistics, Amazon Prime Video, and Possibly Amazon Prime itself.

In particular, many people will wonder if Amazon needs its own delivery service, airlines, and fulfillment centers. Others will ask if Amazon needs to own a robot manufacturer, fashion brands, grocery stores, a movie studio, and a grocery delivery service?

Is Amazon Short-Changing Investors?

I wonder if Amazon’s size short changes investors by eliminating the possibility of new dividend-paying stocks. For example, an Amazon Logistics or AWS stock?

Additionally, Amazon drives companies; such as Macy’s, that issue dividend-paying stocks out of business. Macy’s; for example, paid a 37.75₵ quarterly dividend on 12 December 2019. Meanwhile, Amazon pays no dividend.

History; however, shows, anti-trust actions can create dozens of new investment opportunities. For example, the U.S. Department created 34 companies by breaking up John D. Rockefeller’s Standard Oil monopoly in 1911.

Could Investors Make Money from an Amazon Break Up?

Some of those companies evolved into such modern stocks as Chevron (NYSE: CVX), Exxon-Mobil (NYSE: XOM), and Marathon Oil (NYSE: MRO). Exxon-Mobil reported a gross profit of $67.173 billion on 31 December 2019.

Hence, breaking up Amazon could benefit ordinary investors and Jeff Bezos. John D. Rockefeller Sr. remained the world’s richest man; with a fortune with a fortune worth of 1.5% of America’s Depression-era $92 billion gross domestic product (GDP), until his death in 1937.

Thus, investors could make money from an Amazon breakup. Therefore, Amazon could keep investors from making money. Hence, investors could make money from an Amazon breakup.

Thus, voting for candidates who advocate anti-trust action could be a smart move for investors. Investors could make money from the new, cheaper stocks an Amazon’s breakup creates.

Is Amazon’s Stock Price too High?

Mr. Market paid $2,133.91 for Amazon (NADAQ: AMZN) shares on 10 February 2020.

The lucky people who bought Amazon back when it was cheap make a lot of money. However, high share values price most investors out of the stock market.

That is frightening because stocks are one of the best wealth builders around. Yet, only 55% of Americans owned stock in September 2019, Gallup estimates. In contrast, 62% of Americans owned stock between 2001 and 2008.

Amazon and Income Inequality

Thus, you can claim Amazon’s high stock price contributes to income inequality. Those Americans lucky enough to own stock make more money. Meanwhile, most people cannot afford to buy stock.

Such arguments will fuel arguments for both anti-trust actions and income redistribution. Notably, politicians; including President Donald J. Trump (R-Florida), U.S. Senator Bernie Sanders (I-Vermont) and Andrew Yang (D-New York), blame Amazon for America’s problems.

For instance, Yang often mentions Amazon when he promotes his Freedom Dividend basic income and wealth redistribution scheme. Yang’s charge is “Amazon kills businesses and jobs.” I think Macy’s store closings validate some of Yang’s claims.

Amazon makes too Much Money

Under these circumstances, I think political pressure to break up Amazon will be strong.

However, Bezos could head off such pressure; and make himself a fortune from new stocks, by breaking it up himself. Amazon could spin Amazon Logistics and AWS off, or sell Amazon Robotics and Whole Foods, for example.

Investors need to watch both Bezos and politics because they could make money from the new stocks created. So, yes Amazon is too big and makes too much money. In the final analysis, I think Amazon is too big and makes too much money to be sustainable.

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