Imagining Peak Amazon

Hi, it’s Matt in Seattle. Amazon’s latest earnings report raises the question of how long the company’s incredible ascent can last. But firs [View in browser]( [Bloomberg]( Hi, it’s Matt in Seattle. Amazon’s latest earnings report raises the question of how long the company’s incredible ascent can last. But first... Today’s must-reads: • Peloton is [seeking buyers]( for about 20% of the company • Two venture capital firms are [betting on Twitter]( • Thursday was [a bad day]( for tech stocks What happens when the growth stops? Amazon.com Inc. last week disclosed an [eyebrow-raising milestone](: The world’s largest online retailer sold roughly the same number of goods in the most recent quarter as it did in the same period last year. Unit sales—reported in Amazon’s earnings in terms of “year-over-year growth,” because, historically, all the company did was grow—came in at 0% in its latest report. That is to say, absolutely flat. There are some asterisks. The figure doesn’t include sales by Amazon’s cloud-computing division or Whole Foods. It also tallies only the quantity of units sold, not their value. Amazon’s revenue itself rose by 7.3%. But for a company that has averaged 30% revenue growth since 2000, the unit sales metric is something of a sorry number. After the report, Amazon’s share price crumbled, and financial analysts re-evaluated their (still overwhelmingly optimistic) takes on the company. And lately, a few have been wondering whether the retailer’s recent stumbles might herald the advent of a new era: Peak Amazon. Back in September, D.A. Davidson & Co. analyst Tom Forte published a white paper, “The Death of AMZN? 2.0,” wondering what might topple the giant from its perch among America’s leading companies. It’s worth pausing to note how ludicrous this idea might seem. For years, Amazon has been seen by Wall Street as an inevitability. Predictably, each year, online shopping would grow at the expense of brick-and-mortar retail. And Amazon, the biggest brand in e-commerce, would take home a disproportionate share of all those online shopping sales. E-commerce is inherently more costly and labor-intensive than operating a business like a Target store. But Amazon’s massive growth negated these problems. More Amazon sales would mean more efficient warehouses, and in turn, more cost-effective trips for those ubiquitous delivery vans. Profit margins would rise. And if the company stumbled—because of a period of increased investment, say, or a recession—the profitable cloud-computing unit, Amazon Web Services, would be there to help the company weather the storm and continue to back Jeff Bezos’s big bets. This framework held up through the pandemic, the most chaotic—and, by far, most profitable—period in the company’s history. Then the last six months happened. Sales that had been supercharged by stay-at-home orders and Covid-19 fears petered out. Amazon’s North American unit operated at a loss. Instead of a highly efficient logistics machine, the company had too many workers and warehouses, and was dispatching partly empty trucks. With inflation making Amazon’s goods and the trip to your doorstep more expensive, its model showed some rare cracks. In his white paper, D.A. Davidson’s Forte performed an eclectic thought experiment about what could eventually doom Amazon: He looked to apex predators in nature (snakes can grow forever, lions can’t). And, more practically, to tales of corporate decline from yesteryear like Nokia, GE and AOL. Amazon’s set of risks include pressure from regulators and competition from fierce rivals. Plus, the company’s scale poses its own challenges. Notably, Amazon needs to add billions of dollars of revenue each year to keep up its pace of growth, which justifies the company’s lofty valuation and stock price, which in turn helps recruit and retain employees paid to a large extent in company stock. Throwing that into reverse could mean a nasty spiral. “Some of those things are playing out,” Forte said in an interview. “Their e-commerce business is not growing.” Bezos, who handed over the chief executive officer role to his deputy, Andy Jassy, last summer, was aware of the challenge of staving off decline at a large company, and built into Amazon’s culture a preference for risk-taking. “As a company grows, everything needs to scale, including the size of your failed experiments,” Bezos wrote in his 2018 letter to shareholders. “If the size of your failures isn’t growing, you’re not going to be inventing at a size that can actually move the needle.” In that light, Amazon’s current swings are appropriately colossal. Teams are trying to build a nationwide grocery business, break into health care and send satellites to space to start a business selling internet access. AWS executives, meanwhile, say they’re in the early days of a computing revolution that could pay dividends for decades. Amazon has harbored seemingly crazy ambitions before and triumphed. Could an online bookseller elbow its way onto the territory of retail titans like Toys “R” Us or Home Depot or Macy’s? Would companies trust a retailer to run their servers? Can Amazon build a film and TV studio? The answers, offered over a couple of decades, go yes, yes, and yes. The company may prove its doubters wrong again. But Amazon’s latest results also offer a warning: Nothing lasts forever. —[Matt Day](mailto:mday63@bloomberg.net) The big story Elon Musk secured the funding. As readers of this newsletter [will know](, throughout this week, it appeared that Elon Musk was struggling to nail down the funding for his Twitter bid. But Thursday morning, news broke that the billionaire had [secured more than $7 billion]( from a coterie of investors that included Larry Ellison, Sequoia Capital, Andreessen Horowitz (where Marc Andreessen sits on the [board of a competitor]() and a Saudi prince who had [previously trashed]( the deal in a tweet. Here’s a [run-down]( of Musk’s backers. What else you need to know Cryptocurrency trading platform Amber Group is in discussions to raise money at a $10 billion valuation. A startup is trying to [save newspapers](. Elon Musk and Cathie Wood think [passive investing]( has gone too far. Amazon Labor Union President Christian Smalls told Bloomberg TV he wants to take his organizing efforts [nationwide](. Follow Us More from Bloomberg Dig gadgets or video games? [Sign up for Power On]( to get Apple scoops, consumer tech news and more in your inbox on Sundays. [Sign up for Game On]( to go deep inside the video game business, delivered on Fridays. Why not try both? Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights.​​​​​​​ You received this message because you are subscribed to Bloomberg's Fully Charged newsletter. If a friend forwarded you this message, [sign up here]( to get it in your inbox. [Unsubscribe]( [Bloomberg.com]( [Contact Us]( Bloomberg L.P. 731 Lexington Avenue, New York, NY 10022 [Ads Powered By Liveintent]( [Ad Choices](