Amazon (AMZN) has been and continues to be a serious risk as a combined entity, in my view. There a few troubling factors to the name. The two most important are shipping costs and anti-trust risk. More recently we now have public relations risk.
Let's start with the PR.
When my father-in-law bought an Alexa I almost pulled out what is left of my hair. I simply could not understand why anyone would want that in their house. To save a person maybe three minutes of hassle...a day...the individual is giving up all of their data. People should get paid to use Alexa. They should not be paying for Alexa.
The real risk I see to the businesses of Facebook (FB) , Google (GOOGL) , Apple (AAPL) , and Amazon is not the government regulation risk, it is that people realize how valuable their data is and start demanding remuneration.
Next up, is shipping costs. The U.S. Postal Service has been subsidizing Amazon shipping for some time. The news out today is that the Trump administration is looking for something to do about Amazon while tax structure could also come into play. I believe getting the Post Office to stop losing money on every package directly transfers money out of Amazon's pocket and levels the playing field with many of the retail stores.
Finally, let's discuss anti-trust risk.
Read these sentences:
The Chinese government subsidizes the steel industry, allowing these companies to sell product at a loss, crowding out competition with the long-term goal of owning the market and controlling price.
Now replace the words "Chinese government" with "Amazon Web Services" and "steel industry" with "retail industry."
Basically, if Amazon was based in a foreign country, not the U.S., there is no way the company would be able to do what it is doing in the retail space. Amazon literally does not make money so that it can essentially dump in the retail space. Near term the consumer wins, long term the consumer probably loses.
I would, if I was a regulator, take a serious look at breaking up Amazon. As I stated above, if the company was not U.S. based, it probably would have been stopped by the U.S. government already. In my opinion, the Amazon model has the risk of being broken apart, or, even worse, what if Microsoft (MSFT) and Google catch up to them in web services?
The stock is now trading above $1,400 dollars a share, and less than $200 off the high. Maybe some people see value here, but I do not. I think that unlike Facebook, which is experiencing an "Equifax (EFX) " moment, what is going on in AMZN should raise eyebrows. There are a lot of risks and many of them are justified.
Is there a level where I would be a buyer of AMZN? Yes, but not here. I might start to be interested another 10% lower, near $1,200.
I can get over $25 for the AMZN May 1,200 puts. Those are becoming an interesting sale that is on my radar. I might wait until I see an up day in the stock before I sold, just in case the floor falls off today...which could happen.
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This article originally appeared on Real Money Pro on March 28. Click here to learn about this dynamic market information service for active traders and to receive articles like this from Sebastian, Paul Price, Bret Jensen and others.
