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Amazon investors should shrug off a potential USPS price hike, Morgan Stanley says (AMZN)

Published by Business Insider on Fri, 06 Apr 2018


President Donald Trump claimsAmazonis taking advantage of the US Postal Service.Trump reportedly wants Amazon to pay more in shipping costs to the USPS, particularly in the form of an internet sales tax, which is already being considered by the US legal system.However, there are four factors that can potentially mitigate the effects of a price hike on Amazon, writes a Morgan Stanley analyst.Watch Amazon's stock move in real time here.Amazoncould come away unscathed from President Donald Trump's threats to raise shipping prices and taxes on the company.Trump has accused the online retail of"costing the United States Post Office massive amounts of moneyfor being their Delivery Boy," anddoing "great damage to tax paying retailers."And while while the attacks have been going on for months, they've escalated in the past week.However, Trump's threats could soon could come closer to reality as there's a case in the Supreme Court and two bills on the table in Congress, which could cause e-commerce companies to pay a uniform sales tax instead of only paying taxes in states where they have a physical presence,Brian Nowak of Morgan Stanley says.Nowak believes there's a few positives that could come out of this:Retailers, online and off, would be put on the same playing field as their e-commerce counterparts because a uniformsales tax would make buying goods "more consistent with offline brick and mortar," Nowak says.Given Amazon's name recognition and customer loyalty through Amazon Prime, a uniform sales tax would drive customers toward platforms they already know, like Amazon, for all their goods.Amazon is already collecting taxes on 50% of its US business, Nowak says, yet it is still "able to drive platform stickiness, increase its user value proposition (grow its Prime base) and grow its US business at a 30% '08-'17 CAGR" so this is not a novel concept to the e-commerce giant.This could potentially pressure Ebay and other third-party sellers more so than Amazon. The online retailer could absorb the costs of offering goods for lower prices without significantly hurting the consumer whereas third-party sellers will need to increase their prices in order to make a profit.Though absorbing the costs of goods sold with lower prices and higher taxes may hurt Amazon's overall gross profit and profitability, the impact is likely going to be minimal, Nowak says. Even then, he believes it "would only increase AMZN's total $250bn retail opex base by 1%."Nowak is still "Overweight" the stock with a price target of $1,500 per share.Amazon's stock was trading at $1,449 Thursday, and was up 22.32% for the year.Read more about how Amazon's secret weapon could help counter President Donald Trump's attacks over the US Postal Service.SEE ALSO:Amazon could unleash a secret weapon to counter Trump's attacks over the US Postal ServiceJoin the conversation about this storyNOW WATCH: Wall Street's biggest bull explains why trade war fears are way overblown
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