|Amazon: the new Montgomery Ward|
Amazon's business model is a model of confusion. Their business is really three businesses: eRetailing (what Amazon calls EGM: Electronics and General Merchandise), publishing, and cloud services.
According to Amazon's 10K filing, EGM currently accounts for 60% of the business. And that's precisely where the big trouble lies.
Recent indications are that Amazon has reached a tipping point. For 2011, Amazon's net income was a paltry $631 million on net sales of $48 billion. Compare this to 2010's net income of $1.152 billion on $34.2 billion in net sales. Basic earnings-per-share has gone from $2.58 (2010) to $1.39 (2011).
Basically, Amazon has become a logistics company without wheels. To survive in its present form, it badly needs to acquire an Airborne Express (except that AE has already been acquired by DHL), or maybe a railroad and a package delivery company. Ideally, it also needs to acquire a payment-processing system (a PayPal). Why not just admit the obvious? Amazon needs to acquire eBay.
The alternative is to join the long list of department stores that tried to be all things to all customers (and ended up broke).
Amazon claims it will enjoy greater efficiencies (going forward) by opening more fulfillment centers and putting pressure on suppliers. But their story, frankly, is starting to sound old and is (how shall we say?) at this point painfully unconvincing. Inefficiencies are rising faster than efficiencies, at Amazon. That's what the numbers show. And that's the real point.
You don't have to be a numbers guru to see where Amazon is headed, though. Just look at what Amazon is trying to sell, and draw your own conclusions. The following list was taken directly from the pulldown menu on their U.S. website:
I've highlighted certain items that are emblematic of Amazon's ongoing megalomaniacal bid to be everything-to-everyone. Amazon is trying to out-Sears Sears. But we all know what's happening to Sears. And it ain't pretty.
|Amazon's legacy: empty strip malls everywhere.|
Where Amazon excels, of course, is in book reselling, e-book publishing, and Kindle sales (although they are rumored to be taking a $15 hit on every Kindle Fire sold). This is where Amazon's monopoly power lies. This is where they have the power to dominate, not merely decimate.
Amazon also does well as a cloud-services provider. They can legitimately claim some high ground here.
But in patio, lawn, and garden equipment, sports equipment, kitchen and bath fixtures, and numerous other areas, they're never going to have monopoly power.
In short, the parts of Amazon that deal in electrons are doing well. The parts that deal in protons are not doing so well. That's the crux of the matter.
One day, Jeff Bezos is going to have a Bain Capital moment and recognize that he's in way over his big fat head. There'll be a sudden "huge restructuring" of the business. Big writeoffs will be taken. Apologies will be issued. The stock price will plummet. And Amazon will emerge a much smaller (but more profitable) company.
Either that, or (if Bezos continues to think like a megalomaniac) Amazon will simply hit the wall, hard. And the smoking shards will blanket the earth.
I wonder if they sell hard-hats?
Disclosure: The author has no stake (long or short) in Amazon stock.