Amazon
Amazon is a technology industry that deals with digital streaming, cloud computing, artificial intelligence, and e-commerce. The weight average cost of capital for Amazon company is 8.83%. This is according to the data released on 13th October.
Some of the risks that Amazon is facing in the current political environment include the government’s attitude towards e-commerce and regulation. Amazon plays an indirect role in USA’S politics because of its business’s scope and scale. In a region where Amazon is widespread, the government in power tends to have a particular attitude towards the retail industry. For instance, Amazon’s most significant political factor includes Donald Trump’s criticism and efforts from different governments globally to enhance cyber-security effectiveness. The USA president has accused Amazon of designing the Washington Post as a de facto lobbyist for the company, receiving a sweetheart deal from USA Postal Service, and not paying taxes. These inaccurate misdeeds have defamed Amazon’s good reputation making some customers not to invest in the company. As a result, the company will generate lower returns on investments than the initial capital used to invest in the business. The company can be forced to operate on debts hence affecting their weight average cost of capital. Another risk that Amazon is facing in the current political environment is regulation. Forte argued that if Amazon can step up its regulatory scrutiny or antitrust, Trump’s government could not stop Amazon in its tracks. The ability for regulation and antitrust globally can stunt Amazon’s future growth, affecting its weight average cost of capital.
Changes in taxation, currency exchange rates, and competition are risks that Amazon is facing in the current economic environment. Donald Trump talked about the need to introduce an ‘internet tax.’ He was specifically referring to Amazon. According to analysts, Trump’s perspective was to enable state governments to duress internet retailers to collect their customer’s sale taxes. If the government increases taxes for the internet retail company, its revenue is likely to decrease, affecting its weight average cost of capital. Amazon is also subjected to a great extent of currency exchange risks. Twenty-eight percent of Amazon consolidated revenues were accounted for by net sales from international business. For instance, if the USA dollar depreciates yearly relative to Amazon’s global operating regions’ currencies, its operating expenses and net sales expenses will be higher than if currencies had not changed. Amazon’s currency exchange risks can also affect its weight average cost of capital. Competition is the main operational risk that Amazon is facing in the current economic environment. The retail company is facing intensifying competition in its primary e-commerce field. While several weaker investors have already moved from the market, Amazon will have to enter into new, large, and more competitive markets. Best Buy, a Staples, occasionally offer prices and promotions that beat or match Amazon’s. This competitive pricing leads Amazon and narrower margins across the world for market participation. Many other retailers have merged with other shipping services, becoming stronger than Amazon. Services of this kind have threatened Amazon’s volumes and pricing power hence affecting its weight average cost of capital.
Changes in currency exchange rates, unemployment levels, economic growth, overall and industry specification, inflation rates, and taxation are some of the risks that Amazon is facing in the current economic environment. These economic factors can affect Amazon’s WACC.