Amazon has continuously invested in its future but the company has produced little profit even as it has grown into the behemoth of e-commerce, raising questions over its operations and the strategy of CEO Jeff Bezos, according to a recently-released report.
In October, Amazon shocked shareholders when it reported a $437 million net loss for the quarter, its biggest in 14 years. Quarterly revenue hit $20.58 billion, but the company’s growth rate, once a bright spot for those leery of Amazon’s lackluster profits, is slowing, business and innovation website Fast Company said.
And prospects for the fourth quarter, which closed after the story went to press, were not much better: Over the past five years, Amazon’s fourth-quarter growth rate has steadily declined, from 42% in 2009 to 20% in 2013—and the company was projecting between 7% to 18% for 2014, the report said.
“For years, the story has been that Amazon isn’t profitable because it is growing so fast, ” wrote hedge-fund manager David Einhorn, in a letter to his Greenlight Capital investors. “Now growth is slowing, but rather than unleashing higher profits, the slower growth is leading to even greater losses. One of the principal bullish assumptions supporting many bubble stocks is, ‘The company is growing too fast to be very profitable.’ We think Amazon is just one of many stocks for which this narrative will ultimately prove false.”
Those are some seriously harsh words, especially toward an icon of the Internet age. But Bezos has made a habit of forcing naysayers like Einhorn to eat their words. Every time that this sort of complaint has been raised about Amazon in the past—and this moment is hardly an aberration in Amazon’s history—the company has roared back to prove its doubters wrong. Dubbing Amazon just another “bubble stock” can seem shortsighted, even foolhardy. Betting against Bezos has never turned out well, the report said.
Yet is there something new going on with Amazon, something dangerous on a whole new level? Or is this the latest installment in what Bezos has always been selling about his company: that it is so different in its outlook, its operations, and its potential that it should be judged differently, too? The criticism this time goes beyond the fact that the CEO prefers to invest heavily in what might drive business tomorrow rather than reap profits today. This time, say the critics, Bezos has lost his focus. This time, they say, he is pursuing global domination at the expense of his historic drive to improve the customer experience, Fast Company said.
“Kindle, Prime, AWS, they made absolute sense with the assets Amazon had, ” said Amazon analyst Scott Devitt of research firm Stifel Financial. “But are they still doing things that have a high probability of success, a high long-term return on capital like the old days? That’s where there are more questions today than there have been in a while, where you start to scratch your head. Growth is slowing, and these other initiatives just aren’t taking off. As an investor you have to ask yourself, Is this company doing too many things?”
How do the increasingly fragmented parts of Amazon fit together? What is Bezos’s strategy? These are the questions that people are now flinging at a company famous for its laserlike focus and outrageous efficiency, the report said.