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4 Reasons Why Morgan Stanley Says A Change In Sales Tax Would Be 'Manageable' For Amazon

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4 Reasons Why Morgan Stanley Says A Change In Sales Tax Would Be 'Manageable' For Amazon
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President Donald Trump accused Amazon.com, Inc. (NASDAQ: AMZN) of being a “no-tax monopoly,” and some think this censuring could foreshadow tougher tax policy.

Morgan Stanley said Amazon will survive any onslaught.

The Rating

Analyst Brian Nowak and five colleagues maintained an Overweight rating on Amazon with a $1,500 price target.

The Thesis

Morgan Stanley considers online sales tax legislation “probable” but manageable, particularly as the impact on e-commerce volume remains uncertain. The analysts anticipate mitigated risks for Amazon in light of four factors:

  • Retailers are similarly burdened and reap no competitive advantage.
  • "Platform loyalty and product elasticity would be key,” and Amazon boasts both.
  • Amazon is already accustomed to collecting state sales taxes on its first-party transactions, about 50 percent of its U.S. business. The law requires it pay in jurisdictions in which it is physically present, and Morgan Stanley expects that it collects in all 47 states in which it has buildings, but merely does not enforce collection on third-party sales facilitated through its platform.
  • Any new taxes are seen to be a bigger threat to eBay Inc (NASDAQ: EBAY) and other third-party sellers without direct inventory.

Despite these circumstances, a change to e-commerce tax policy could prove marginally painful.

The risk is that Amazon's "need to reduce prices to offset income tax impacts ends up being larger than expected ... which leads to lower overall gross profit and profitability,” Nowak said in the note. 

Price Action

At the time of publication, shares were set to open 1.72 percent higher off Wednesday’s close.

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Latest Ratings for AMZN

DateFirmActionFromTo
Sep 2018Wells FargoMaintainsOutperformOutperform
Sep 2018CitigroupMaintainsBuyBuy
Sep 2018DA DavidsonMaintainsBuyBuy

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