Trump Targets Amazon for US Postal Service’ Rising Losses

Trump Targets Amazon for US Postal Service’ Rising Losses

 
On the last trading day of 2017, the stock of e-commerce giant Amazon.com, Inc. (NASDAQ: AMZN) fell 1.40% or $16.63 to close at $1,169.47. While reporting the Q3 results, Amazon had forecast that its e-commerce business will likely lose money in the fourth-quarter. The company said it expects a Q4 revenue of between $56 billion and $60.5 billion. Operating income was forecast in the range of $300 million to $1.65 billion. That means, Amazon’s e-commerce business will certainly lose money at the lower end of the forecast, and the performance of Amazon Web Services will determine whether the company will post a net profit or loss in the fourth-quarter. As the holiday season has ended, the market may be coming into terms with the guidance and that is pushing the stock downwards. Additionally, on Friday last week, the US President Trump criticised the company  for paying low rates to the US Postal service (USPS). The dissatisfaction expressed through a tweet is also expected to keep the stock bearish in the near future.

The US President Donald Trump questioned the need for the US Postal Service to deliver the packages of Amazon and others for such a low charge and lose billions of dollars a year. Further, the President suggested the postal department “should be charging MUCH MORE!” The President is currently spending his holidays at Mar-a-Lago estate in Florida. Trump has around 45 million Twitter followers.

Amazon uses the US Postal Service to complete what it calls the “last mile” of delivery. In the US, the company has a network of 20 “sorting centers” where the packages of customers are sorted by zip code and delivered to post offices. The post office completes the final step of the package delivery process. The actual agreement between Amazon and the Postal Service is not clearly known. However, according to David Vernon, a Bernstein research analyst who tracks the shipping industry, the US Postal Service handled nearly 40% of Amazon’s total package volume in 2015. Vernon also estimated that Amazon paid $2 per package to the Postal Service. It is almost half of what Amazon would pay in case it uses FedEx or UPS for delivery.

It is not the first time the US President has criticised the online retailer and its CEO, Jeff Bezos. Last August Trump blamed the company of causing huge losses to taxpaying retailers. Notably, since last April Amazon began collecting sales tax on the products it sells directly. In the past, Trump had also criticised “The Washington Post,” which is owned by Bezos.

The US Postal Service reported a net loss of $2.1 billion in 3Q17. It has $15 billion in outstanding debt and has lost $62 billion over the past decade. If the US Postal Service decides to raise delivery charges, then it may affect the bottom line of Amazon by as much as $2.6 billion, according to a report from Citigroup. The report, published April 2017, also warns that FedEx and UPS will follow suit, if the US Postal Service decides to charge more for delivering packages. The news is expected to have a negative impact on the stock of Amazon.

Technically, the stock has started declining after facing resistance at 1190. The stochastic indicator is also descending after moving out of the bullish zone. Thus, we expect a price correction in the stock of Amazon.

Amazon - Technical Analysis - 2nd January 2018

In order to gain from the probable decline, we wish to purchase a put option from a reliable broker listed here. The option should be active for at least seven trading days. Additionally, we will consider acquiring the option only if the stock trades near $1170 in the stock market.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.


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