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Sunday, May 13, 2012

Overvalued Amazon Still Underpays Taxes


This blog has not looked upon Amazon’s corporate citizenship favorably when it comes to its role in the book publishing industry.  Upon further inspection, the company is also not a good Wall Street investment nor is it a responsible company when it comes to paying taxes.

Apple, which is valued at about five times Amazon’s stock price, nets a profit every day that exceeds what Amazon made in the past 90-day quarter.  Think of that.  Apple is five times as big as Amazon but makes 90 times what Amazon nets.  Yet, Amazon’s stock price is inflated compared to most companies.  Amazon trades at a price that is roughly 56 times its estimated annual cash flow.  Most companies trade at levels close to 10-20 times their cash flow.

Amazon’s operating profit is less than 1% of what they bring in.  Their best year was 2009, when they netted 4.6% of what they brought in.  And they bring in a lot more now, which means they spend a lot more.  What do they spend money on?  Aside from selling some products at a loss, Amazon has been spending billions to build huge warehouses all across the country to allow it to ship items quickly and at a low cost to the company.

Which leads to their next transgression: tax evasion.  Amazon, like many online-only companies, benefit from laws that allow them to avoid collecting and paying sales taxes.  20 years ago when the country was just beginning to introduce e-retail, it encouraged consumers to buy, in part, due to the avoidance of sales tax.  It’s gradually changing and more companies are charging sales tax, especially when they have physical presences, such as stores, in a specific state.  But, Amazon continues to operate unfairly, choosing which states will cut them tax breaks for building mega warehouses.

For instance, Texas is owed 269 million dollars in sales tax revenue from Amazon.  That would represent the company’s entire net profit for half a year.  Amazon, instead, traded their quarter-billion-dollar debt to the state by promising to collect sales tax beginning this July and vowing to build warehouses in the state.  But Texas will need to forget about the money it is owed.  Boy, I’d love for the government to be so forgiving of all of us!

Here’s what is ludicrous.  Amazon has committed to a timetable to start collecting sales tax in six other states but many of them won’t start until next year and one is as late as four years from now.  Why should these sales criminals be allowed to compete unfairly while not collecting the tax that all other retailers collect?

So let’s summarize:
1.       Amazon fails to compete fairly by not colleting sales taxes.  Further, they deny states money that could be used to help fund budget deficits.

2.      Their stock is laughably overpriced. Those who invest in the company should think about buying stock from Bernie Madoff.

3.      Amazon believes capitalism means you compete on price in a way that would cause others to operate at a loss, and thus, wound your competition.  It’s a bully that is looking to use its market capitalization to force others to capitulate to its unreasonable demands.  The book publishing industry would be better off without Amazon.

Beware of any company that wants to sell everything to everyone.  Wal-Mart is the biggest employer in the country because it’s the biggest retailer, but it pays peanuts to its employees.  Amazon sells everything but does so in a way that it seeks to bleed its vendors dry.  America wants cheap goods and services but it wants companies to be responsible corporate citizens—treat your vendors and employees fairly, pay your taxes, and compete to serve consumers well—without cheating to do so.   

Brian Feinblum’s views, opinions, and ideas expressed in this blog are his alone and not that of his employer. You can follow him on Twitter @theprexpert and email him at brianfeinblum@gmail.com. He feels more important when discussed in the third-person.

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