It’s not exactly a big secret that Amazon.com, Inc. (NASDAQ:AMZN) wants to take over every corner of the world.
Its recent decision to get into the grocery game via an acquisition of Whole Foods Market, Inc. (NASDAQ:WFM) rekindled rumors it was mulling becoming an online pharmacy underscore the idea. Owners of AMZN stock cheered both ideas, of course.
The investors are thrilled the company was looking to enlarge its wingspan, drive more revenue, and collect more invaluable customer data.
Still, there are — or at least should be — some concerns about this unbridled ambition, though.
There are three realities investors may want to mull sooner than later, as they could pull the rug out from underneath Amazon stock.
Bumping Into Antitrust Headwinds
Truth be told, there’s nothing inherently anti-competitive about the company’s planned purchase of Whole Foods.
There won’t reduce the number of owners within the grocery game. There will just be different owners.
Nevertheless, there’s something philosophically concerning about a company that’s so dominant operating in so many different spaces, clearly leveraging its customer data. That’s why Ohio Representative Marcia Fudge recently urged the FTC and DOJ to look “beyond the normal antitrust process that only examines competitive impact” of the deal and consider the likelihood that this deal could eliminate access to groceries for some markets.
The federal government has been willing to consider such concerns recently, , all too aware that some mergers end up being anti-competitive by eventually forcing closures.
Amazon would undoubtedly counter by pointing out its prices for key consumer goods are cheaper than most grocery store prices, but a closer look at its pricing policies reveals that isn’t necessarily always the case. Once Amazon knocks some grocers out of business, there’s not a lot to prevent it from raising prices to unfair levels.
In other words, don’t be shocked of the DOJ does put up a fight against the Whole Foods/Amazon merger, as well as balk at similar deals in the future.
Taking on Too Many Projects
One of the more charming aspects of owning AMZN stock over the years is the constant flow of new business ventures it was willing to take on. On-demand video is a relatively fresh development for Amazon; cloud-computing services is also relatively recent.
A grocery drive-through and the decision to go head-to-head with Blue Apron Holdings Inc (NYSE:APRN) by delivering ready-to-cook meals are just a couple of other recently entered frays, as is the move into the smart-home market with the establishment of teams of real-life installation technicians.
So far, Amazon seems to be able to manage a variety of dissimilar business lines. Don’t be fooled though. There will come a time when the company has so many different balls to juggle that it ends up dropping them all. We may be nearing that point if we’re not there already.
Remember, Amazon’s profit margins are already paper thin. The more small projects it’s got on the table the less scale matters. All this “stuff” could drag the company back into the red on a regular basis.
Forcing Other Companies Into Alliances
Last but not least, it was Jim Cramer who recently brought up the possibility that Amazon’s growth could be stopped in its tracks if Wal-Mart Stores Inc (NYSE:WMT) and Microsoft Corporation (NASDAQ:MSFT) were to team up and explicitly make a plan to do so. That’s just one of a variety of pairings that could — and likely will — start to develop now that the e-commerce giant has made it clear it aims to conquer the world. Other potential pairings that could prove problematic for Amazon are discussed here.
So far none has occurred, with most large corporations preferring to do things on their own. Amazon’s increasing dominance is undeniable though, and its competitors are finally, tacitly starting to open their minds to new ideas.
Bottom Line for AMZN Stock
Don’t get the wrong idea. If nothing else, Amazon already has momentum and experience as a widely diversified conglomerate, and it can hire lawyers just as good as those working for the Department of Justice should the Feds start to sweat the sheer number of pies Amazon has a finger in.That could send a shiver down the backs of AMZN stock holders.
All the same, there’s a reason the cliche “nothing lasts forever” has remained in circulation for as long as it has… it’s true. If for no reason other than necessity, the rest of the world may be ready to fight back against this unchained monster.
The world’s got a good shot at taking a toll too.
— James Brumley
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Source: Investor Place