In the next few years, I see two challenges that could attempt to shake up Amazon's (AMZN) Internet domain. One formidable opponent to its Internet sales kingdom would be Wal-Mart (WMT). The second challenge that could come its way is the formation of a national Internet tax structure that is bound to happen sooner or later. It will be interesting to see how consumers respond to paying taxes online which could have a direct effect upon Amazon's earnings.
Will Internet Tax Give Wal-Mart An Advantage?
As Wal-Mart (WMT) and Amazon (AMZN) battle for online retail sales revenue, Wal-Mart continues to creatively think of ways to compete with the online giant. It does have an in-store pickup (which I have used myself) and an online ordering system whereby shoppers can go straight into the store and pick it up without waiting in line. Amazon has a working relationship with Staples and 7 - Eleven after the same manner.
Presently its research lab is exploring a global technology platform that will allow shoppers to buy items off smartphones outside the United States in places like Brazil and China. If the program works successfully, thousands of Wal-Mart stores could be turned into same day delivery warehouses. Wal-Mart, the fourth largest online retailer, will expect to rake in $9 billion by the end of this year. Just to put it in perspective with Amazon's online store, AMZN brought in over $21 billion in the fourth quarter of 2012 alone.
Here is the irony behind the competitive relationship that Wal-Mart has with Amazon. Could it be that Amazon has reached a zenith, where income is slowing, expenditures are rising and the Marketplace Fairness Act will be forcing the company to collect sales tax on a statewide basis fairly soon? While Amazon continues to build infrastructure that will provide same day delivery, Wal-Mart already has this in place with all of its stores. What's going to happen when investors watch Amazon's earnings get smaller and smaller? Its just food for thought.
Amazon Supports National Internet Sales Tax
Besides the threat from a "Wal-Mart with warehouses," I believe Amazon knows that an Internet sales tax of some type is going to be in its future. Recently, New York's Supreme Court upheld the New York state sales tax by a four to one vote. Both Amazon and Overstock challenged the constitutionality of the tax but to no avail. The court found too much similarity between Internet sales and mail order sales because of the affiliations and links that gear sites have to local audiences. But Amazon now supports a national Internet sales tax approach instead of state which may be smart. Different states have different tax rates and one uniform rate might be better overall for the Internet sales giant. This may be some time out though as Congress is not yet close to forming a bill to address this and Amazon may have to deal with state taxes in the short term. Individual states with their own individual taxes could be a logistical nightmare and cost much more than one uniform tax rate nationally. This would just be more money out of Amazon's pocket and out of the earnings chauffer. But there is an answer to this problem.
Marketplace Fairness Act Will
The Marketplace Fairness Act gives the states authority to make online retailers, wherever they are, to collect sales tax at the time of transaction. States are given this authority after they simplify their tax laws. The concept of simplifying the tax law is to make it easier on the Internet vendors so that things don't get too complicated. There are two ways that states may do this. There is a Streamlined Sales and Used Tax Agreement (SSUTA) developed and already adopted by 24 states that other states can join. This will give them the ability to collect taxes on the first day of the calendar quarter 90 days after it has been enacted. Or if states don't pursue this road there are five guidelines a state must agree to:
1. Notify retailers in advance of any rate changes within the state
2. Designate a single state organization to handle sales tax registrations, filings and audits
3. Establish a uniform sales tax base for use throughout the state
4. Use destination sourcing to determine sales tax rates for out-of-state purchases (a purchase made by a consumer in California from a retailer in Ohio is taxed at the California rate, and the sales tax collected is remitted to California to fund projects and services there)
5. Provide free software for managing sales tax compliance, and hold retailers harmless for any errors that result from relying on state-provided systems and data
These are similar positions to (SSUTA) and make it easier for retailers that have to collect taxes. This will be a solution to the challenges Amazon could face if it had to deal with 50 different tax structures.
After peaking toward the end of February, the stock looks like it has begun a mildly bearish peak and valley formation. This makes it look like a well-defined bearish trading channel. The RSI indicator tends to support the move of the stock as highs are getting lower and lows are also getting lower. The MACD is following in the same manner as it has recently moved below the zero line. For all intents and purposes it looks like the stock is in the beginning of a bearish trend.
Wal-Mart's ability to create mobile sales software is important in its challenge of Amazon's online retail business. It will be interesting to see if Wal-mart as a household retail name can transition into a household Internet retail name. If it can, this will impact Amazon. In terms of online sales tax, I believe the reaction of consumers will be the biggest influence on Amazon's earnings and investors will just have to wait and see how it pans out.