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Will allegations over vendor treatment hurt the Amazon share price?

The Amazon share price [AMZN] closed 1 July at $3,432.97, 5.41% up since the start of the year. Having surged to an early peak of $3,380.00 on 2 February, the Amazon share price then endured a tough period that saw it close 8 March at $2951.95, 9.4% down for the year.

However, the Amazon share price then entered a period of recovery that saw it peak at $3,471.31 on 29 April, recovering 17.6% since the 8 March low.

Since then, the Amazon share price has surged even higher, closing at $3,718.55 on 12 July – an 84.9% increase for the Amazon share price over the trailing 12 months.


Amazon's share price rise over the trailing 12 months


Stakes in the online market

The latest criticism to be levelled at Amazon is that it has been imposing conditions on would-be vendors that allow it to purchase significant stakes in their businesses at potentially discount prices The Wall Street Journal reported.

Amazon obtained warrants to purchase shares in at least 12 publicly traded companies supplying services such as call centre resources or natural gas, as part of conditions for suppliers to work with the e-commerce giant.

For example, grocery distributor SpartanNash was recently presented with a clause allowing Amazon to buy 15% of its stock at potentially sub-market rates. Amazon also reportedly wanted notification and a ten-day window to counterbid in the event that the grocer received a takeover bid.

According to insiders familiar with the matter, Amazon may have agreed as many as 75 such deals over the past decade, and according to its latest quarterly report, the value of its warrants has increased fivefold over the last three years to $2.8bn.


Valuation of Amazon's warrants over the last 3 years


An Amazon spokeswoman said that such agreements typically hinge on Amazon meeting certain requirements, such as large purchases from particular suppliers, but declined to comment on specific deals. She added that arrangements with such warrants account for less than 1% of its commercial agreements.

However, Amazon has a history of exploiting its market dominance, through practices from requiring partners in one area of the business to sign up to other services, to creating its own branded products to compete with those of small sellers on its site. While such practices undoubtedly boost the Amazon share price, the company insists that its dominant market share benefits shoppers by giving them better prices.

Regulators, however, appear to disagree. On 11 June, a bipartisan bill that would compel Amazon to split its business in two or abandon its own-label products was introduced to the US House of Representatives. While the bill faces many challenges before coming into law, its introduction saw the Amazon share price fall 0.1% during a run of otherwise large daily gains.


Time to IBUY online

Ecommerce has had a stop-start year. The ProShares Online Retail ETF [ONLN] closed 12 July 8.6% through the year so far. With 24.72% of the fund’s weighting as of 13 July, the Amazon share price is a significant factor in the fund’s performance and will have contributed significantly to its gains of 72.4% in the 12 months to 12 July.


ProShares Online Retail ETF YTD returns rise


At the other end of the scale, Amazon is 20th on the list of the Amplify Online Retail ETF [IBUY] with just 1.85% of the fund’s value (as of 13 July).

The ETF gained 12.1% in the year to 12 July, but just a month and a half earlier, on 13 May, it was down 5.7% for the year. Looking further back, 12 February saw the fund 21.7% above its starting price, and it has seen some dramatic swings along the way as, among other factors, uncertainty around pandemic reopenings and lockdown continuations have swung the markets.

The fund’s performance to 12 July indicates that the Amazon share price may have underperformed the wider e-commerce market through 2021 so far, despite its uptick in the last week but over the past 12 months, the Amplify Online Retail has climbed 64.4%, failing to match the climb of both the big tech stock and the ProShares Online Retail ETF.

Disclaimer Past performance is not a reliable indicator of future results.

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