I have a long series of negative articles on Amazon.com, Inc. (AMZN), covering everything from its irrational overvaluation, to its plunging earnings and estimates, to the clear threats it faces, in the form of a shifting paradigm for digital goods sales, competition from large established tech companies, and the need for collecting sales taxes. So, perhaps it's time to write something positive about it.
I've thought long and hard on what to write. Sure, I could write about how Amazon.com is changing the face of retail by offering a lot of different stuff over the mail. But then again, so was Sears back in the 19th century. Indeed, the Sears Catalog was actually selling homes by mail back in 1908, so selling an extensive catalog through mail order isn't exactly new. Perhaps Amazon.com isn't so revolutionary after all.
But suddenly I had an idea. There's something clearly positive that's going to have some effect in this and the next quarter, at the very least. It has to do with Amazon.com collecting sales taxes.
You see, when a new tax is enacted, increased or enforced, there's this effect. People try to buy before they have to pay the tax. It so happens that Amazon.com will have to start collecting sales tax in a few populous states in the very short term. Indeed, it has just started collecting them in Texas on July 1, and should start collecting it in California come September.
So what's positive about this?
Well, as people fall over themselves to buy up from Amazon.com right before it starts to collect tax—an event that was widely published in the local media—Amazon will see inflated revenue numbers. So for the June quarter, this effect could have pushed overall revenues slightly higher than they would otherwise be, and the September quarter might see exactly the same effect from California, but then it might be too late.
Why too late? Well, right after the revenues are inflated by the effect I mentioned, they then plunge a whole lot more than they'd usually plunge from the tax effect only. This happens because trying to buy before the tax takes effect brings consumption forward, so after it takes effect you have the drop both because of the tax and because of what was consumed earlier.
Amazon.com might see a slight bump in revenues in the June quarter due to the fact that it started collecting sales tax in Texas on July 1. However, since Amazon.com reports on July 23 and has access to real time revenue data, it's likely that it will already be in possession of data that will show the subsequent Texas revenue drop. Thus, while this effect made it easier for Amazon.com to meet its June quarter revenue estimates, it will probably also lead to guidance for the September quarter, which will include a peek into the subsequent revenue slowdown.
Disclosure: I am short AMZN.