Amazon (NASDAQ:AMZN) has been on an unstoppable winning streak for many years now. The company has brushed aside all sorts of concerns about overvaluation and poor profitability. The move into Amazon Web Services in particular truly catapulted AMZN stock to its spot among the world’s most valuable investments.
It’s also made fortunes. Jeff Bezos is the world’s wealthiest man, and his ex-wife, MacKenzie Scott, is now the world’s richest woman, thanks to her large Amazon stock position resulting from the divorce. It’s not just the insiders either; Amazon has created countless millionaires among investors.
However, the meteoric rise of AMZN stock is now coming to an end. The company has faced plenty of criticism over the years from investors, primarily due to low profitability. That’s been overcome with continuing strong revenue growth. But bigger issues are emerging.
Amazon has growing employee unrest, government regulators smell blood, and meanwhile, numerous e-commerce rivals have sprung up and are now attacking some of the company’s most profitable niches.
1. Rising Employee Strife and AMZN Stock
Amazon is having increasingly tense relations with its employees. It already was a focal point in the battle for a $15/hour minimum wage. And following the novel coronavirus, employees want much more. Ex-employee Chris Smalls, who claims Amazon wrongly fired him, is now leading a collective bargaining movement for employees.
In a recent interview, Smalls laid out their agenda:
“Our demands are simple […] $30/hour, as far as minimum wage. We feel the cost of living is going up, this company’s revenue is going up. This company made an abundance of billions of dollars off the profit of people, at the expense of our backs. So we would like to have a decent living wage.”
Smalls didn’t stop there. He says Amazon needs to provide free health care and child care for workers. Additionally, he says that Amazon must provide $200,000 in compensation for each Amazon worker that died during Covid-19 due to the company’s allegedly unsafe work environment and lack of preventative measures to stop the spread of the virus.
Investors may try to ignore this. However, it’s becoming increasingly serious. Smalls’ group recently set up a guillotine outside of one of Bezos’ houses in a dramatic protest. Additionally, reporters recently exposed the fact that Amazon is paying tons of money to spy on its employees in an effort to keep them from unionizing. Needless to say, this is a terrible look for Amazon, and could both irritate the public and draw hostile regulation from politicians.
1. Antitrust Concerns
Amazon has been a bipartisan target for criticism. Democratic politicians such as Bernie Sanders and Andrew Yang have blasted Amazon for paying insufficient wages while destroying malls and Main Street businesses.
Meanwhile, the Trump Administration has launched investigations into the big tech companies, including Amazon. It’s also no secret that Jeff Bezos and President Trump have some animosity toward each other.
However, through the pandemic, Amazon had largely avoided any actual consequences for their perceived monopoly position in online retail. That may change though. While the pandemic has accelerated Amazon’s market share gains, it has also amplified criticism that the company is too powerful.
Amazon’s latest move — turning failing malls into distribution centers — is drawing particular ire. With Amazon having crushed many local towns and cities’ tax bases, look for politicians to force Amazon to pay up for its past anti-competitive behavior.
3. Rising E-Commerce Competition
The one ray of good news on the anti-trust front is that Amazon is starting to lose share in many e-commerce niches. Actually, that may be bad news too though, in the broader AMZN stock outlook. Over the past six months, a ton of e-commerce stocks such as Shopify (NYSE:SHOP), Etsy (NASDAQ:ETSY) and Chewy (NYSE:CHWY) have positively blasted off.
All these sites serve verticals that Amazon could dominate. Instead, Amazon is losing ground to niche competition left and right. It’s also getting crushed in the grocery wars, as the Whole Foods acquisition appears to be a lemon.
Turns out, rivals aren’t just going to let Amazon eat the whole internet without a fight. While this may keep the antitrust regulators at bay a little longer, it’s still not great for Amazon’s share price. When investors are betting on Amazon remaining invincible indefinitely, any sort of mishap can cause the share price to slide.
AMZN stock sells for such an absurdly high multiple that it would take nearly miraculous execution from the management team to warrant a higher share price once the Covid-19 tailwinds are gone. And instead, large chunks of the total addressable market are disappearing as sites like Shopify and Etsy are enjoying historic growth this year.
AMZN Stock Verdict
None of these three factors will necessarily sink AMZN stock tomorrow. The company has several potential catalysts that could still power shares higher as well.
At any point, Bezos could copy his peers at Apple (NASDAQ:AAPL) and Tesla (NASDAQ:TSLA) and issue a stock split. This might drive up the stock price. Furthermore, the lingering effects of the pandemic may lead to a strong holiday season for Amazon.
Regardless, huge headwinds will soon slow down Amazon’s rise. After rising sixfold since 2016, look for Amazon stock to deliver far less impressive returns going forward.
In fact, the unthinkable may happen; AMZN stock could even go down as these pitfalls trip the company up. Both the company and its shareholders have become complacent after years of unbridled success. That’s a risky place to be in the fast-changing world of commerce.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.