Amazon Thinks Big, and That Doesn’t Come Cheap
(Bloomberg Opinion) -- See this chart? It shows that Wall Street is in one of those cyclical peaks of optimism that Amazon.com Inc. is starting to turn into a profoundly profitable company that will justify years of relatively tiny earnings.
But Amazon doesn’t give a hoot about outsiders’ expectations. Yes, it’s true that the e-commerce giant has fundamentally improved profit characteristics now that it’s getting bigger chunks of its sales from high-margin initiatives including the company’s cloud-computing service and Amazon’s role as a shopping mall for non-Amazon merchants. But let’s not forget that Amazon is still Amazon, and that means the company is always hunting for its next huge market that will require oodles of cash.
Spencer Soper at Bloomberg News published an article Wednesday afternoon that details Amazon’s consideration of a plan to open as many as 3,000 stores without cashiers in the next few years. Amazon has been testing the waters with a handful of convenience stores without cash registers starting in its hometown of Seattle. But what Amazon is contemplating could be much, much bigger, and should cause investors to feel less sanguine about those Wall Street profit forecasts.
Amazon is still deciding on the right strategy for these potential stores, Soper reported. One plan under consideration would put Amazon in the same business as the sandwich-and-salad pickup joints that dot the business districts in many big cities, and that are often clogged with hungry office workers during meal times. Americans and the rest of the world spend a large share of their budgets on groceries and on eating out, and what Amazon is considering could give the company a shot at both massive pools of consumer spending.
Amazon’s plan may never pan out, of course. And even if it does, Amazon could fall on its face. There are no guarantees even for Amazon in an entirely new category of business. But if Amazon goes ahead with thousands of stores, it will cost a fortune. Soper reported that the technology hardware alone in Amazon’s first convenience store cost more than $1 million.
Multiply that figure plus other operating costs times 3,000 stores, and we’re talking about a multi-billion-dollar investment in an untested area for Amazon. And that doesn’t include whatever Amazon is spending on its other ambitious projects, including expanding package-delivery operation.
This is the Amazon way: The company has big ideas that come with big price tags. A lot of the time, those big swings result in home runs like its vast e-commerce mall, Prime shopping club, AWS cloud computing operation and the Echo line of computer hardware.
Amazon doesn’t think small, and that’s why it’s the second-most-valuable company in the world with an eye-popping stock valuation. The world got a reminder on Wednesday not to be lulled into believing Amazon is about to change its free-spending ways.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Shira Ovide is a Bloomberg Opinion columnist covering technology. She previously was a reporter for the Wall Street Journal.
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