Yahoo Finance answers: What’s so great about Amazon?

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Yahoo Finance

We’ve been covering Amazon (AMZN) a lot lately, mainly because President Trump has been attacking the company.

Trump claims the US Postal Service undercharges Amazon for delivering its packages, which is probably not true. He also bashes Amazon for not collecting sales tax on behalf of third-party vendors who sell through the platform, and for harming small businesses in general.

Like other media organizations, we’ve generally defended Amazon, because there’s little substance, if any, to Trump’s claims. Still, some readers wonder if we’re cheering a little too hard for Amazon. Here are some of the readers’ questions we’ve collected on the issue:

Why is Yahoo Finance overly positive about everything Amazon? First, we’re not. We’ve covered layoffs at Amazon, controversies involving its handling of reviews and many other matters that reflect negatively on the company. But Amazon is a remarkable business in at least two ways. The first is innovation: It brings entire new industries from the future to the present, ranging from e-commerce to e-readers to smart speaks such as Alexa. The second is its impact on consumers: Its offerings have made shopping easier and more convenient for many millions of people, while also saving them money.

So when Trump attacks the company for what are probably personal reasons—Trump seems to hate CEO Jeff Bezos, who also owns the Washington Post, which is frequently critical of Trump—we’re comfortable calling foul. If Trump had a legitimate gripe with Amazon’s business practices, we’d be among the first to acknowledge it. But so far, he doesn’t.

This is a business that operates on roughly a 1.5% profit margin. How is this business good for the economy? Amazon’s profit margin was 1.7% in 2017, which is admittedly low. But that’s because Amazon puts so much money back into its business, continually investing in R&D and new lines of business. Low margins also help keep costs low for consumers. I asked our markets reporter, Myles Udland, about this, and he told me the ultimate verdict is Amazon’s share price—up 416% during the last five years. “The market has for almost two decades largely ruled on this point,” Myles says. “Amazon’s low margins are actually good.“

Name one other business that has such low margins, and is good for the economy. It depends what you mean by “good for the economy,” but retailers in general have low margins. Walmart’s profit margin was 2.8% in 2017, Kroger’s was 1.7% and Costco’s was 2.1%. Pretty good company.

Confidential tip line: rickjnewman@yahoo.com. Encrypted communication available.

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Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman

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