Is Amazon Becoming a Monopoly?
I’m writing this part of today’s blog on Wednesday, the 19th, and boy is Blue Apron on a tear today! The meal-kit company’s stock is up over 5% as of this afternoon. What a wonderful day it is to be a shareholder of the newly public company. Or not. 5% is great, but not when your stock is down 33% since its debut less than a month ago. There’s another word for that, volatility. And where does this volatility come from? Well, Amazon, of course.
Amazon made quick work of eviscerating Blue Apron on June 16th, almost two weeks before the meal-kit company went public. Blue Apron was supposed to list with a valuation of about $3 Billion, not bad for a company founded four years ago. That quickly changed when Amazon announced its acquisition of Whole Foods Market on the 16th. Seemingly overnight, the IPO price for Blue Apron (trading under aprn) was slashed $10, cutting their valuation to about $1.9B, a 37% cut in valuation. As of this moment Blue Apron is trading at a valuation of about $1.25B, another 34% drop in valuation.
Why does this matter? If anything, this is something we see happening all the time. Amazon decides to enter a market, investors begin to freak out, and companies try to hang on through an all out offensive put on by the behemoth, Amazon. We’ve seen this before with Diapers.com, the online retail giant that found itself in a pricing war with Amazon. They had their valuation cut in half and were eventually purchased by Amazon at a steep discount. Guess where the diapers.com URL goes to now, you guessed it, Amazon.com.
For Amazon, these businesses are easy to compete against. A cursory google search puts Amazon and their competition right next to each other. This allows them to undercut and over deliver to the same client base in a way other e-tailers can’t compete with. You know where Amazon can’t compete? Brick and mortar. At least not yet.
This is why independent retailers and manufacturers alike have to stay alert. Amazon’s foray into brick and mortar is going to create conflicts it can’t even foresee yet. Just as Chewy’s acquisition by PetSmart forced brands like Champion Petfoods and Fromm to pull their products (read more here). Amazon is going to run into problems when it comes to brick and mortar distribution. Some companies, not all, will be forced to reevaluate their distribution strategies, especially as PetCo, PetSmart, and distributors like Phillips Pet Food Supplies begin to make a stink; and that’s just in the pet industry.
Is this going to stop Amazon and their expansion into physical brick and mortar sales? Probably not, but it does create an interesting question, and one that’s being brought up by US lawmakers as we speak.
When will Amazon be considered a monopoly? And, by what provision of US antitrust law can they be classified as a monopoly.
As initially reported by Bloomberg LP on 7/14/17
“Amazon’s proposed acquisition of Whole Foods raises important questions concerning competition policy, such as how the transaction will affect the future of retail grocery stores, whether platform dominance impedes innovation, and if the antitrust laws are working effectively to ensure economic opportunity, choice and low prices for American families,” Cicilline wrote.
That’s right, a company can be considered a monopoly if they sufficiently discourage competition in their field. A case still has to be made but hedge fund manager Doug Kass has already taken a short position on Amazon’s stock. Furthermore, Goldman Sachs openly questioned in a letter whether tech stocks are overpriced.
If that’s the case, what might an eventual break up of Amazon look like and when should we expect to see it? Companies have been notoriously clever in getting around US antitrust law before. Microsoft was able to get around a potential break up years ago by investing in Apple and keeping them on life support. Google gets around it by not being classified as a search company. Only time will tell what will happen with Amazon. Regardless, independent businesses of all shapes and sizes need to focus on what they can do to protect themselves and grow during these exciting and risky times.
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