Amazon’s deal spree raises ‘No. 1 question’ from investors

From Yahoo Finance:

Amazon (AMZN) has telegraphed to investors and the world that deals are key to its future, but those transactions create antitrust risks — and investors are taking notice.

. . . .

Amazon has made headlines for its big-ticket dealmaking in recent months. The company acquired both subscription health care provider OneMedical (ONEM) and Roomba-maker iRobot in quick succession, for $3.9 billion and $1.7 billion respectively. However, investors have been concerned that Amazon’s deals, including the buyout of vacuum-making iRobot, are primed to face an Federal Trade Commission (FTC) challenge.

“It’s the No. 1 question asked,” Thill said. “It comes up in every investor conversation and I think, clearly, they’re not going to block a vacuum cleaner company from being bought. I don’t think they’ll have an issue there, but [antitrust scrutiny] does prevent Amazon from doing other software acquisitions and e-commerce acquisitions.”

Amazon has famously made some of the biggest deals out there in the last decade or so. In 2017, the company bought upscale grocer Whole Foods for a jaw-dropping $13.4 billion. Soon thereafter, Amazon dropped another near-billion to acquire online pharmacy PillPack. It hasn’t just been recent either — back in 2009, even in the depths of the recession, Amazon closed its deal to buy online retailer Zappos for $1.2 billion. Earlier this year, Amazon also closed its $8.6 billion acquisition of MGM.

However, major deals aren’t all that’s on the table for Amazon and other mega-cap tech companies. The innovation coming out of companies like Amazon and Alphabet-owned Google (GOOG, GOOGL) means they aren’t incentivized to exclusively focus on huge deals, according to Thill.

“There’s tons of innovation right now at Amazon and Google and others in tech, so I don’t think they necessarily need to go out and do big deals,” he said. “They’ll do smaller tuck-in deals.”

Still, it’s a question of what’s small to Amazon and which of these deals could finally push lawmakers over the edge. For example, Amazon’s iRobot buyout came under renewed scrutiny last week, when Sen. Elizabeth Warren and a group of lawmakers requested that the FTC reject the deal.

Amazon’s deals haven’t spurred federal action yet, but FTC Chair Lina Khan is a noted critic of Amazon, and her ascension has been linked to a series of her writings exploring what a breakup of the company would involve. Notably, the company has so far been subject to antitrust action at the state level. Recently, California sued Amazon, alleging that the restrictions it places on its third-party sellers are anticompetitive

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“It’s a question, it’s an overhang, it’s certainly in every investor conversation, in every meeting we go into, it’s the No. 1 question,” he said. “I think that the way they mitigate this risk is that they’ve been able to do M&A.”

Thill has a point. Though doing more deals is a risk, it’s also a safeguard. The Information has referred to it as Amazon’s “whack-a-mole” dealmaking strategy. The FTC can’t logistically challenge every single acquisition, so like Amazon, the regulator is going to need to pick its battles. While Amazon has to be careful going forward, so does the government, said Thill.

“They have to be careful… [Amazon’s] doing the right thing for their employees, their shareholders, and the ecosystem… Amazon is a huge employer, so the government also has to be careful with how much they regulate them, because they are an incredible, incredible vibrant source for the economy that’s helping many in their daily lives. So, there’s a fine balance that we have to walk and I think Amazon is doing that.”

Link to the rest at Yahoo Finance

PG notes that he hasn’t seen a whole lot of innovation in the KDP world. Indeed, he hasn’t seen much creative development in Zon’s bookselling business. An increment here and an increment there, but nothing very interesting.

7 thoughts on “Amazon’s deal spree raises ‘No. 1 question’ from investors”

  1. These days all of book sales are a rounding error at Amazon.
    As a low margin business the steady income is a nice to have but it’s worth remembering trade books sales have been stagnant all century. eBooks and KU were low hanging fruit as replacements for MMPB but, realistically, what innovation is there to be made that might justify the investment?

    They tried higher education and failed.
    Microsoft tried Higher education and failed.
    Apple tried higher education and didn’t even get to fail.
    Google won’t even bother.

    Academic teachers are tech phobic and what other publishing market remains?

    • Good points, as usual, F. Agreed that dead-tree books are and for a long time, have been narrow margin, but I suspect ebooks have notably better margins.

      Today’s Zon is in the business of making money from organized electrons and ebooks are just another way of organizing electrons.

  2. This is entirely unsurprising, because the ‘zon was never about innovation. It was always about de-Rube-Goldbergizing direct-to-enduser fulfillment. That’s something that has advanced by incremental improvements since the late fourth century CE in the West and a bit before then in China.

    None of this is to say that the ‘zon did nothing worthwhile or difficult (or better than its competitors). Actually paying attention to the entire end-to-end system is hard (just try getting an aircraft maintenance squadron ready to deploy to northern Saudi Arabia, ready to maintain the aircraft and repel Saddam’s hordes; now multiply by the entire coalition force). But innovative — not so much.

    Dear MBAs and “business journalists”: You keep using that word (“innovation”). I do not think it means what you think it does.

    • Generally agree as regards to Amazon the retailer. Good logistics and getting the basics right is innovation enough, there.

      But.

      Amazon’s profitability comes from tbe tech side.
      AWS, ALEXA, and Fire, but AWS above all.
      https://www.visualcapitalist.com/aws-powering-the-internet-and-amazons-profits/#:~:text=Here%E2%80%99s%20a%20closer%20look%20at%20the%20financials%20around,%2412.4%20%20%2058%25%20%20%20%24232.8%20

      If the Roomba deal goes through (and IdiotPolitician™ rants aside, there is no reason to really gripe about) robotics will start bringing in meaningful revenue, not just reducing operational costs.

      AMAZON.COM offers a lot of free cash flow and a lot of branding presence plus guaranteed market access to their gadgets (Kindle, Echo, Ring, Halo, Fire, Omni, and Blink) but 74% of the money they pocket is from AWS. In fact, given the cash flow from AWS and tbe gadgets they could spinoff retail and get even more valuable.

      The market just hasn’t noticed.
      It’s a lot like Microsoft that many see as “the Windows company” when Windows is nowhere near their top revenue streams among their 20 or so multi-billion dollar businesses.

      These days retail is pretty low in the list of Amazon concerns.

      What they really sweat over is tbeir investments in RIVIAN and Project Kuiper. Especially the 83 satellite launches tbey signed up for. Those could really hurt if tbey go south.

      • Good analysis.

        When Amazon first appeared, I was personally enthusiastic as a hard-core book consumer, but it’s been a real professional education in the tech industry watching their path. Their deep pockets have been invested in several significant “second user” roles (not the first user of tech, but the one who demonstrates the usage), with AWS and especially the robotic warehouses. They’re not the inventor, but the use-case exemplar, and that’s an important business role for the industry.

        They don’t always succeed, but they do keep expanding the possibilities, even in retail (less important for them re: profits, but nonetheless an important role in the tech/consumer ecosystem.) And I have to approve of their continued focus (however well-implemented or not) in synergistic business between all their components, something not all companies manage well as they grow.

        • Some companies never grow beyond one-trick pony status and eventually die.

          And I agree that the industry needs more companies that “eat their own dogfood” as they put it at Microsoft. If your product isn’t good enough for your own business, why not? And why not fix it so it is?

          Vertical integration isn’t for everybody but a lot of companies are hurting themselves by not doing as much as possible inhouse. Amazon and Tesla are two that seem to strike a pfetty good balance. And as globalism totters, this balance is going to be a survival trait.

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