If this trend should continue, then Amazon.com, Inc. (NASDAQ:AMZN) will show ongoing growth sales in e-books – the company’s core business. The rise in e-book readers and the high number of e-books read indicate demand for e-books is rising not only because of product price but due to other factors.
The comfort and speed of buying an e-book and other products are likely to remain the strong points of purchasing online, and are likely to maintain the growth in e-commerce sales even with a sales tax.
eBay Inc (NASDAQ:EBAY)
eBay Inc (NASDAQ:EBAY)’s international business segment accounts for a high portion of its gross merchant volume: in 2012, the company’s U.S segment accounted for 39% of its total volume; this means the international segment has a much higher share in the total volume (of 61%). On the other hand, the growth in volume was much higher in the U.S (16%) during 2012 (y-o-y) than in the international segment (only 10%).
Furthermore, in terms of net revenue, the U.S and international segments are roughly the same. But the growth rate is higher in the U.S than it is internationally. So, the U.S segment accounts for roughly half the company’s revenue, which mean the taxation legislation will only affect at best half the company’s revenue.
But even so, I think the taxation will have a smaller effect than many might consider. eBay Inc (NASDAQ:EBAY) is basically a place for bargain hunting. A tax might make products less of a bargain, but since the alternative (going shopping in a store) will remain more expensive and already include taxes then the demand will only be marginally affected by it. This is true only in case of across-the-board imposed tax on all states and not for a single state’s tax hike.
A recent study (opens pdf) showed that eBay Inc (NASDAQ:EBAY) buyers are sensitive to a tax bump when it comes to a rise in state tax (a single state): a state’s increase in sales tax by 1% could cut state retailers sales by 3% to 4%. The study didn’t consider across-the-board tax increase in all states. I suspect the price elasticity in this case will be much smaller.
I don’t think the decision to raise taxes will be good for the online retailers, but the concerns might be a bit overblown. The leading companies don’t only rely on the U.S and have very strong international segments. The effect of taxes on online purchases might eventually have a small adverse effect on leading online companies.
The article Will Taxing Online Retailers Curb Their Rally? originally appeared on Fool.com and is written by Lior Cohen.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
