Big tech stocks have been hit hard in recent days after a slew of reports unveiled that the U.S. government is finally prepping action against America’s biggest technology companies. Specifically, the Department of Justice is probing Alphabet (NASDAQ:GOOGL) and Apple (NASDAQ:APPL) on antitrust concerns, while the Federal Trade Commission is probing Facebook (NASDAQ:FB) and Amazon (NASDAQ:AMZN).
The impact of these probes is being broadly overstated in big tech stocks. Big tech companies will emerge from these probes largely unscathed for a multitude of reasons, mostly because them being so big is to the benefit of the U.S. consumer and because history says a slap on the wrist is the most likely outcome. That’s why I said buy the antitrust dip in Facebook and Google stocks. Now, I’m extending that bull thesis to AMZN stock.
Broadly speaking, Amazon stock might actually be the best buy of the four big tech stocks being targeted for antitrust practices. If you look across Amazon’s portfolio of businesses, you’d be hard pressed to claim the company has a monopoly anywhere. Sure, it is very big in a few spaces (e-commerce and cloud). But, those markets are fiercely competitive, competitors are rapidly gaining share, and the only reason Amazon remains so big is because they continue to cut prices, which benefits the consumer and represents the opposite of monopolistic practices.
In other words, Amazon isn’t a monopoly in any shape or form. As such, if Amazon stock continues to drop on antitrust concerns, such weakness is unwarranted. Ultimately, it’s just a buying opportunity for long term investors.
Don’t Stress Big Tech Antitrust Probes
In the big picture, investors shouldn’t be too worried about big tech antitrust probes. These probes were bound to happen, and they will likely result in nothing more than slaps on the wrist.
Investors should keep in mind that these are just probes. Probes are just investigations. No one is saying Facebook, Amazon, Alphabet, and Apple broke antitrust law. There’s just speculation that it may have happened because these companies are so big. Now, regulators are looking into the matter.
These investigations probably won’t find much of anything. To be clear, antitrust law is a thing in order to protect consumers. These four big tech companies being so big is actually to the benefit of consumers. Among other things, Facebook being so huge allows them to spend far more than peers on protecting consumer data, Amazon being so huge allows them to offer consumers unparalleled low prices and high convenience, and Alphabet being so big allows consumers to have an easier time searching the internet. Breaking up these companies would actually hurt the U.S. consumer.
Let’s assume, though, that in a worst case scenario, the probes do find that antitrust laws were broken. The case would go to trial. A judgement would be issued. That judgement would be appealed, and then re-litigated. That’s a lengthy and costly process. Indeed, it’s so lengthy and costly that unless the antitrust violations were that severe, most parties don’t really want to pursue the process fully.
Instead, as was the case when Microsoft (NASDAQ:MSFT) faced a similar probe back in 2000/01, the ultimate conclusion here will likely be a settlement.
Amazon Doesn’t Violate Antitrust Law
With respect to Amazon, claims of antitrust violation seem particularly misplaced.
On the retail side, Amazon’s e-commerce business is very big at ~45% share of the U.S. e-commerce market. Ostensibly, that looks like a monopoly. But, it’s just first mover’s advantage. Over time, natural competitive dynamics in the e-retail world will drag Amazon’s market share considerably lower.
This is already happening. Pretty much every competitor is growing faster than Amazon in the e-commerce space. Amazon’s online store sales growth rate was barely above 10% last quarter. Meanwhile, traditional retailers Walmart (NYSE:WMT) and Target (NYSE:TGT) both reported ~40% e-commerce revenue growth last quarter. Online-focused retailers Wayfair (NYSE:W) and Etsy (NASDAQ:ETSY) reported ~40% and ~20% gross merchandise sales growth last quarter. Shopify (NYSE:SHOP), the e-commerce solutions provider enabling a wave of Amazon competitors, reported 50% gross merchandise sales growth last quarter.
In other words, Amazon’s competitors aren’t dying; they are thriving. In response, the company is cutting prices and making free one-day shipping the new Amazon Prime norm. Both of those moves are to the benefit of the consumer.
Thus, while Amazon’s retail business does command a big market share, competitive dynamics in this market are not constrained, and ultimately, Amazon’s competitive tactics are actually benefiting the consumer.
Meanwhile, the cloud business is very big, too, with ~32% market share. But, the cloud market is very competitive. There’s Microsoft Azure, Google Cloud, and Alibaba Cloud, among others. All three of those cloud businesses are growing faster than and gaining share on AWS.
In the ad world, Amazon is a small player. On the music side, the company lags Spotify (NYSE:SPOT) and Apple. In streaming, Netflix (NASDAQ:NFLX) takes the cake. Meanwhile, Amazon’s offline business are growing, but they are far from being dominant in any shape or form.
Bottom Line on AMZN Stock
Big tech antitrust concerns are overblown. This is especially true for Amazon, a technology giant that, while big, is far from a monopoly, operates in highly competitive markets, and consistently implements competitive tactics which benefit the U.S. consumer.
Consequently, any and all antitrust dips in Amazon stock are nothing more than buying opportunities.
As of this writing, Luke Lango was long AMZN, GOOG, FB, WMT, TGT, SHOP, SPOT, and NFLX.
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