This article was originally published on Opto – Invest in the Next Big Idea.
While that might not seem impressive, analysts are generally agreed that Amazon’s share price appears to have a bright future — the stock has a near consensus buy rating, with an average price target suggesting plenty of upside.
Yet CEO Jeff Bezos — aka the richest human on planet earth — hasn’t quite forgotten earthbound matters amidst his plans to visit space in July. As surely as gravity pulls us all to the ground, regulator scrutiny often makes investors jittery around tech stocks — and Amazon has just hit turbulence from European regulators.
Europe’s regulators find their teeth
Amazon is back under the spotlight in the UK (if it ever left), as the Competition and Markets Authority has launched a probe into whether or not the firm unfairly advances its own products on the retail platform.
The UK watchdog has been looking into how the retailer collects data and decides which merchants appear in the site’s “Buy Box” — the area where customers add a product to their cart. The investigation could look into whether Amazon favours merchants who also use its logistics services when deciding who has access to the Buy Box and Prime customers, according to the Financial Times.
The UK regulator’s decision follows the launch of a similar probe in 2019 by the European Union. This focused on how the accumulation of marketplace data by Amazon affected competition, and how merchants were chosen to appear in the Buy Box.
“European consumers are increasingly shopping online. E-commerce has boosted retail competition and brought more choice and better prices. We need to ensure that large online platforms don’t eliminate these benefits through anti-competitive behaviour,” commissioner Margrethe Vestager, who is in charge of EU competition policy, said at the time.
“European consumers are increasingly shopping online. E-commerce has boosted retail competition and brought more choice and better prices. We need to ensure that large online platforms don’t eliminate these benefits through anti-competitive behaviour” – commissioner Margrethe Vestager
While the EU’s case is more mature, it is still expected to run another year. According to the FT, one reason it is moving more slowly than expected is that EU investigators are struggling to understand how Amazon’s algorithm works despite sending detailed questions to the tech giant. Regulators in the UK could expect a similar slog as they get to grips with the issue.
Still, Amazon isn’t off the hook with EU regulators. It still faces a potential $425m fine under EU privacy laws, according to the Wall Street Journal. In draft papers, Luxembourg’s data-protection commission, the CNPD, has recommended Amazon be served a hefty fine for breaking the bloc’s General Data Protection Regulation (GDPR).
What’s ahead for Amazon?
Before the decision can become final, it will need to be agreed upon by all member countries. The fine would represent circa 2% of Amazon’s $21.3bn net income for 2020. Under GDPR guidelines, the fine could be lowered or increased to a maximum of 4% of global sales revenue. This would equate to a maximum fine of $1.54bn, according to Market Watch.
Since GDPR came into being, the largest fine has been the €50m slapped on Alphabet’s [GOOGL] Google. However, Europe is now stepping up its efforts to come down harder on US tech companies, in part due to activists claiming the regulators have been too slow in getting to grips with the problem.
The Irish regulator has drafted a decision to fine Facebook [FB]between €30m and €50m over lapses in data sharing in its WhatsApp messaging app under GDPR. That will be quite a step up from the €450,000 it fined Twitter [TWTR] in December 2020.
Perhaps of more concern for tech companies is the G7 agreeing to a US proposal that calls for corporations to pay 15% tax. Under the deal, companies could be taxed in any country where they make more than 10% profit on sales. In 2019, Amazon paid just £293m in tax in the UK, despite making $17bn in the country, so any deal is likely to weigh on the firm’s profit margins.
How has Amazon’s share price coped?
Amazon’s share price has proven resilient to the UK regulator’s decision to launch a probe, with the stock closing 11 June at approximately the same level as when the story broke the day before.
That could change if and when fines do start to be imposed, although the EU’s proposed fine is a drop in the ocean when compared to the $490.55bn Wall Street expects the online retailer to make this year — a 27% increase year-on-year. Earnings for the current year are pegged at $55.87 a share, up from $41.83 seen in the previous year.
Amazon’s share price has an average $4,238.59 price target from analysts tracking the stock on Yahoo Finance — a 26.6% upside on 11 June’s closing price.
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The investment universe is changing beyond all recognition, and with a thematic focus, investors can capitalise on this wholesale disruption. From Genomics to Artificial Intelligence, disruptive innovation empowers companies to displace industry incumbents, and secure majority market share. Opto exists to identify those businesses, and help investors to invest in the next big idea.