Analysis of Amazon and the effects of US tariff policy on its stock price interests me for a few reasons: they are the second largest retailer globally, their sales are highly concentrated in the US market, as a 'tech' company they have secured higher revenue multiples than other retailers, they are invested in the current administration, and finally the attraction of capital to indexed and correlated instruments means that volatility can have reverberating effects, and finally due to the migration of capital to indexed and correlated products significant changes in the stock price can have reverberating impacts.
While information about exact numbers is difficult to find most of the sources that I can find peg about 70% of the goods currently for sale on Amazon as made in China. Many domestic manufacturing groups point out that this number is likely an overestimate as Amazon only requires companies to mark "country of origin" thus enabling US warehousers, or people with triangle shipping strategies to mark goods as having domestic origin. These sellers would be subject to import duties themselves therefore raising prices even though the product is "of US origin". We cannot make accurate calculations about revenue attribution from the sales of these products but it is clear that a significant portion of Amazon's retail sales are generated from foreign as opposed to domestic product.
I believe that Amazon's positioning of itself as a tech company first increases its exposure to the potential damage cause by tariffs. Firstly as a tech company its current stock price is buoyed by the bullish sentiment in that market. America's tech dominance has propped up the domestic and global economy for the last 5 years. However we have not seen a massive rise in new stars in the industry but more of a trend towards centralization. To a extent the sentiment towards tech is a self-fulfilling prophecy the top 5 companies do well, that attracts investment to the same 5 stocks and the cycle repeats itself. These companies enjoy P/E ratios that traditional investing advice would call dangerous and have for a great number of years. Investors that have not been dissuaded by these indicators have done well in the last few years, I am happy to see risk seeking capital generate profits. However given these multiples and the emergence of regulatory risk that has largely been evaded by the sector there is again a threat to the overall price.
As a retailer Amazon has succeeded in providing a large swath of products to customers, at low prices, and very quickly. Tariffs have an ability to threaten all three of these key pillars of success. In particular danger is the issues that can can be caused by supply chain disruption when logistics is so tightly controlled. We saw catastrophic and long lasting impacts on the automobile segment in COVID. Many people in the industry pointed out that the inclusion of TPS/Kaizen/Just in time methodologies that were so important for creating efficiency and reliability had created a very slick but also very fragile supply chain. Amazon operates one of the most advanced logistics operations around the world and its good functioning is crucial to making sure that it can stock or supply the number of SKUs they manage, keep operational costs low, and manage same or next day delivery.
Reviewing 2024 financial statements shows that revenue from net product sales was $272 billion compared to $365 billion from services. Is this the primary story in the end? As a consumer I think of Amazon as a retail shop but the market primarily views it as a service provider (AWS)? Does the market not think that the tariffs will go into effect? Or do they expect that that exemptions will be carved for large industry?