Amazon.com's (NASDAQ:AMZN) stock has significant upside potential. The price has recently been beaten down to $161 by a pessimistic market psychology regarding video streaming to Amazon.com Prime customers and a battle against the government regarding sales tax (average analyst target price is $198).
First off, video streaming is in the exploratory stages at Amazon.com. That is why the company only offers it for free to Prime Customers. Amazon.com is not going head-to-head against Netflix (NASDAQ:NFLX). Providing this service to Prime Customers is a great test program and also an extra benefit to Prime Customers for their loyalty to the company.
Second, Amazon.com is currently an advocate for every American Citizen by holding to the status of not collecting sales taxes from its customers. Remember Obama’s August 2009 statement, “You don’t raise taxes in a recession.”
Amazon is winning the sales tax issue by complying with the Supreme Court Ruling from 1992 that “only merchants that have a physical presence, such as stores, in a state have to collect sales taxes.”
It violates the very substance and form of our government for U.S. Sens. Richard Durbin (D-Illinois) and Mike Enzi (R-Wyoming) to instigate legislation forcing online retailers to collect sales taxes - and thus overrule the Supreme Court precedent set in 1992 regarding online retailers. Nobody in the current “Republican House” wants to increase taxes, and the American people do not want increased taxes.
Current articles in The Wall Street Journal and New York Times present Amazon.com in a negative light and make it appear like the company is in the wrong for not collecting sales taxes.
The Wall Street Journal has the following: ”Amazon is choosing to be a bully” by dropping affiliates instead of collecting taxes, said California Assemblywoman Nancy Skinner.
The New York Times Opinion Pages concludes its article by stating that “the best outcome would be for Congress to pass legislation requiring all retailers, online and off, to collect sales taxes everywhere they are due. In the meantime, states should not give in to Amazon’s pressure tactics."
Are you kidding ... they think that is "the best outcome?" These articles make it appear that Amazon.com is keeping money from the government. What is not being stated in these articles is that each customer of Amazon.com will be paying the higher taxes ... not the company. Amazon.com will just be collecting money and then handing the money over to the state governments. Plus, the enormous impact on small businesses tracking and complying with submitting sales taxes on their product offerings to so many different states ... this paperwork nightmare will just put them all out of business.
Amazon.com points out that it is helping small mom and pop retailers to channel their goods to the mass public by allowing them access to sell through Amazon.com's site. Amazon has recently cancelled contracts with these small retailers in Illinois because that state has mandated sales tax on all these “Amazon.com Associated Retailers.” The end result is lost revenue to small retailers, lost jobs for Illinois residents, lost sales revenue to the State of Illinois, and in reality lost income tax revenue.
When directly ask, “Who is winning ... Amazon.com or the government?” Stu Woo (author of the Wall Street Journal Article) stated to the MarketWatch news team that “Amazon is winning.” Amazon is keeping in complete compliance with the Supreme Court Ruling from 1992 and has that ruling as legal support for its actions.
Why Buy AMZN Stock?
Amazon.com is winning and will win in regard to sales taxes. It is wisely testing the success of adding video streaming instead of immediately going into the extended costs of competing in the video streaming market. If for some reason Amazon.com has to start collecting taxes it will be the American people who pay the Tax Man, not Amazon.com.
People will still shop online because it is convenient and they can find what they want. People will watch video streaming through Amazon.com because it is convenient and at a competitive cost. In the last two weeks the question of sales taxes, video streaming as well as the Japan Earthquake have significantly impacted Amazon.com’s Stock Price as shown below. This negative impact will not be sustainable.
Analyst Price Targets: Amazon.com stock has an S&P Target Price of $200. Other analysts have the stock price targeted at $180 to $210 (average is $198).
Amazon.com holds $8.76 billion in cash and has only $641 million in long-term debt.
Next earnings release for Q1 is just 30 days away.
The 50-day low price and high price: $160.97 vs. $191.60.
High over the last two weeks: $172.09.
Closing Price on March 17: $160.97.
Disclosure: I am long AMZN, NFLX.