Wednesday , October 27 2021

Jeff Bezos says that Amazon is not too big to fail. He's right



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Yesterday, & nbsp;CNBC reported& nbsp; The Jeff Bezos, in & nbsp; an all-hands meeting earlier this month, said: & nbsp; "Amazon is not too big to fail … In fact, I predict one day Amazon will fail. Amazon will go bankrupt. Looking at big companies, their lifespan tends to be 30 plus years, not a hundred plus years. "He responded to an employee who asked if the CEO had learned a few lessons after Sears and other major dealers recently filed for bankruptcy. & nbsp;

There are a few reasons why & nbsp; Bezos & nbsp; Right. As a retail investor told me, "All dealers should of course go bankrupt." It is a cynical point of view, but it reflects the reality: Retail is going through bicycles. Some types of retailers become popular, but then they fail to adjust and their businesses decrease and eventually disappear. We see it over and over again. Dealers who can change are exempt, not the rule.

But Amazon is now the second largest retailer in the United States. How is it possible that a thing such as big can disappear?

It is possible that the company can & nbsp; losing contact with its customer, but it seems very unlikely for Amazon. & Nbsp; It is the only one known to be hyperfocused.

There is another scenario that is scary for Amazon.

It is well-known that Amazon is not assessed for profitability. If it were, & nbsp; Its stock market price would be a small part of what it is now. Amazon has done an incredible job on many different things, and one of them gets the financial markets to value the company based on revenue growth, assuming that profitability will come later. Amazon explains its flame& nbsp; gains of & nbsp;says it uses what profit it does to invest in new ideas and experiments to continue. So far, the market has accepted Amazon's explanation. People I talk to say that as long as Amazon continues to increase its turnover by 20-25% per year, the market will bring future profitability for the company and the stock price will continue to rise.

For over 100 years before bankruptcy, Sears had everything for everyone and & nbsp; successfully adapted to what customers would like. Amazon has been good with it so far. It has not attempted to be better in retail than people who have been successful in retail for a long time. Instead, they perfected skills that were not considered as the retail skills at all. Amazon was based on logistics and technologythings that were not previously a core value driver for retailto offer better value to consumers. And since it developed resources internally, Amazon turned some of them into companies like Amazon Web Services, which today makes more money than the rest of Amazon combined.

But as Amazon blows beyond the $ 200 billion revenue limit, it will be harder to find revenue sources that will have the impact it needs on revenue growth. For example, you can not double the number of Prime subscribers in the country. There are not enough households left to do it and the saturation is already too high. There must be new sectors to take online, just as it first did & nbsp; with books. It needs new industries, such as grocery stores, healthcare, banks or cars, which have relatively low online penetration and the ability to convert to online sales in order to maintain their revenue growth. But the matter with that is it is difficult and it is uncertain. Amazon has owned the whole food for just over a year and conversion to online does not seem to happen, at least so far.

If Amazon does not find new sources of revenue growth in other industries, expansion will slow down. And because the stock price has been affected so much by revenue growth, it will not continue to rise. It's the key to Amazon more than most companies, because so many middle and middle-level employees are incitivated & nbsp; of limited liability companies. An important part of their compensation, more than most other companies, is that the stock price continues to rise. If it does happen, Amazon employees, who are already highly sought after by other companies, will be more susceptible to offers other than ever before. When they start leaving, stock price stagnation will make it difficult for Amazon to replace them and the whole wheel can stop spinning.

You may say that Amazon is too much a part of people's daily habits for it to disappear. It's true for a while, but when a company loses its best people, innovation capacity goes away too. It is not long before it is overtaken.

For companies like Amazon competing against head-to-head, it has been a very difficult way. Amazon's ability to access capital cheaply without regard to profit, combined with its ability to hire the best people has made it possible to dominate industries. But Bezos is right and nothing goes forever. The end of Amazon can be very far away-or& nbsp; It can not be. & nbsp; This year is designing to be a good & nbsp; one for the United States economy. But you do not have to be as good in this kind of environment as you do when times are harder. When the thin years come, will Amazon be able to maintain its growth? And will the financial markets be equally forgiving? How long the circumstances will continue to adapt to the Amazon service is somebody's guessbut it's not forever.

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Yesterday, CNBC reported that Jeff Bezos, in a meeting with all hands earlier this month, said: "Amazon is not too big to fail … In fact, I predict one day Amazon will fail. Amazon will go bankrupt. If you look at big companies, their lifespan tends to be 30 plus years, not a hundred plus years. "He responded to an employee who asked if the CEO had learned a few lessons after Sears and other major dealers recently filed for bankruptcy.

There are a few reasons why Bezos is right. As a retail investor, told me: "All dealers should of course go bankrupt." It is a cynical point of view, but it reflects the reality: Retail is going through bicycles. Some types of retailers become popular, but then they fail to adjust and their businesses decrease and eventually disappear. We see it over and over again. Dealers who can change are exempt, not the rule.

But Amazon is now the second largest retailer in the United States. How is it possible that a thing such as big can disappear?

It is possible that the company could lose contact with its customer, but it seems very unlikely for Amazon. It is the only thing that is known to be hyperfocused.

There is another scenario that is scary for Amazon.

It is well-known that Amazon is not assessed for profitability. If so, the stock price would be a small part of what it is now. Amazon has done an incredible job on many different things, and one of them gets the financial markets to value the company based on revenue growth, assuming that profitability will come later. Amazon explains its flame gained from says it uses what profit it does to invest in new ideas and experiments to continue. So far, the market has accepted Amazon's explanation. People I talk to say that as long as Amazon continues to increase its turnover by 20-25% per year, the market will bring future profitability for the company and the stock price will continue to rise.

For over 100 years before bankruptcy, Sears had everything for everyone and successfully adapted to what the customers wanted. Amazon has been good with it so far. It has not attempted to be better in retail than people who have been successful in retail for a long time. Instead, they perfected skills that were not considered as the retail skills at all. Amazon was based on logistics and technologythings that were not previously a core value driver for retailto offer better value to consumers. And since it developed resources internally, Amazon nicely turned some of them into companies like Amazon Web Services, which today earn more money than the rest of Amazon combined.

But as Amazon blows beyond the $ 200 billion revenue limit, it will be harder to find revenue sources that will have the impact it needs on revenue growth. For example, you can not double the number of Prime subscribers in the country. There are not enough households left to do it and the saturation is already too high. There must be new sectors to bring online, as did the first with books. It needs new industries, such as grocery stores, healthcare, banks or cars, which have relatively low online penetration and the ability to convert to online sales in order to maintain their revenue growth. But the matter with that is it is difficult and it is uncertain. Amazon has owned the whole food for just over a year and conversion to online does not seem to happen, at least so far.

If Amazon does not find new sources of revenue growth in other industries, expansion will slow down. And because the stock price has been affected so much by revenue growth, it will not continue to rise. It's the key to Amazon more than most companies, because so many middle and middle-level employees are incited by corporate stocks. An important part of their compensation, more than most other companies, is that the stock price continues to rise. If it does happen, Amazon employees, who are already highly sought after by other companies, will be more receptive to offers other than ever before. When they start leaving, stock price stagnation will make it difficult for Amazon to replace them and the whole wheel can stop spinning.

You may say that Amazon is too much a part of people's daily habits for it to disappear. It's true for a while, but when a company loses its best people, innovation capacity goes away too. It is not long before it is overtaken.

For companies like Amazon competing against head-to-head, it has been a very difficult way. Amazon's ability to access capital cheaply without regard to profit, combined with its ability to hire the best people has made it possible to dominate industries. But Bezos is right and nothing goes forever. The end of Amazon can be very far away-or It may not be this year forms to be an excellent for American economy. But you do not have to be as good in this kind of environment as you do when times are harder. When the thin years come, will Amazon be able to maintain its growth? And will the financial markets be equally forgiving? How long the circumstances will continue to adapt to the Amazon service is somebody's guessbut it's not forever.

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