Columnist Martin Peers in The Information has a piece that is very tough on Amazon, suggesting that its current problems – low stock price, mounting layoffs among them – are largely self-inflicted.
An excerpt:
“Just three years ago, Amazon was flush, thanks to the pandemic boom in online shopping. In 2020, for instance, the company generated $66 billion in cash from its operations, up 71% over 2019. That strengthened its balance sheet enormously: Amazon finished 2020 with $84 billion in cash, offset by nearly $32 billion in debt. Managed prudently, that net cash position of $52 billion should have positioned it to comfortably ride out any downturn. But Jeff Bezos, then the company’s CEO, never got anywhere by being cautious. So he embarked on an expansion that used much of Amazon’s cash reserves, weakening the company just as the e-commerce market tanked.
“By last Sept. 30, Amazon’s balance sheet showed it had more debt than cash for the first time since 2004, according to S&P Global Market Intelligence. That means $52 billion evaporated in just seven quarters! The major reason is that cash produced from operations shrank to just under $40 billion in the 12 months to September, while spending on capital expenditures and acquisitions soared.
“Amazon last year took steps to cut back: It slowed its warehouse expansion, while it held off on opening some newly built Amazon Fresh stores. But in hindsight, perhaps Andy Jassy, who succeeded Bezos as CEO in 2021, should have backed out of the MGM acquisition, which cost $8.6 billion in cash and assumption of debt last March, as well as other deals struck since then but not completed, such as those of Roomba’s maker, iRobot, and One Medical. Such a retreat would not only save Amazon money but also reduce the pressure the company faces from antitrust regulators.”
Peers concludes that Amazon “is not in good shape if you set aside Amazon Web Services. Excluding the results from the cloud business, it lost $8.1 billion in the first nine months of 2022. And that’s despite the fact that Amazon generated $26 billion in high-margin ad revenue in the same period. Imagine how much money Amazon would be losing if it weren’t for that … After nearly 30 years in operation, Amazon should be in better shape. It’s time for the wild spending to stop.”
KC’s View:
Hard to argue with Peers’ assessment. (He always is incisive … his columns are favorites of mine, and alone make The Information indispensable.)
In reading it, I thought about the observation that I’ve made here ad nauseam – that while Walmart (and, in fact, most retailers) is in the business of selling more stuff, Amazon always has wanted to be inextricably intertwined in every element of our lives. I’ve always suggested that neither approach was right or wrong, just different … and Peers’ analysis suggests to me that at the very least, Amazon’s approach was a) more capital intensive, and b) more risky during a downturn.
It has been my observation that Amazon has been right-sizing rather than retreating, and that I wouldn’t panic, though I also think that while Jassy is doing the tough work of making cuts, he has not been as inspirational as I think he needs to be. The CEO message should be, “This is addition by subtraction. In fact, if we do this right, it will be multiplication by subtraction.” I’m not sure that message is coming across, which is why I think we’re going to see Jeff Bezos returning as CEO at some point.
Let’s be clear: Amazon has a vision of the world and its role in it. It has seen tough times before, and not just survived, but thrived. The stakes are bigger now, and the aircraft carrier that is Amazon’s business harder to move. But it is hard for me to accept the notion that, in tough times, Amazon should abandon its core business propositions and become Walmart.
Tom Furphy has made the point numerous times in our Innovation Conversations – Amazon has to continue to grow, find new areas into which it can expand, and innovate. The entire culture and infrastructure depends on it.
But it may be that we’re seeing the limits of that approach. (No doubt we’ll talk about that in next week’s Innovation Conversation.)
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