We’re a quarter into 2021, and cloud adoption keeps accelerating. Remote work has forced even the most traditional businesses to rely on online collaboration tools, which is a win for Atlassian, Amazon (via AWS), and others in the cloud services space. Atlassian’s project-management solutions are making waves: the more teams go digital, the more they need streamlined collaboration software.
I came across a solid TechCrunch article discussing Atlassian’s acquisitions that aim to enhance product offerings in enterprise collaboration. They’re positioned strongly to retain market share, especially as software development teams expand and new remote workflows become permanent.
AWS remains the undisputed leader in cloud infrastructure—further boosting Amazon’s overall valuation. It’s fascinating how AWS essentially underwrites Amazon’s other ventures. While e-commerce sometimes struggles with low-margin or logistical complexities, AWS’s robust revenue stream more than compensates. I see that synergy as a major reason to stay long on AMZN.
Now, some worry cloud growth might slow post-pandemic, but I doubt it. Once a company invests in cloud infrastructure, it rarely goes back. The cost savings, scalability, and global access remain too compelling. Atlassian’s Confluence and Jira, Microsoft’s Azure, Google Cloud, AWS—these are now essential for businesses of all sizes.
Short-term dips may appear, but for long-term investors like me, these cloud-focused tech giants are building an ecosystem that’s tough to dislodge. That’s why I keep adding on small pullbacks and letting my positions ride.
I’ve spent the start of this year reviewing how tech stocks have fared after the tumult of 2020. Unsurprisingly, many big names continue to thrive—especially companies like Facebook (still calling it that for now) and Amazon, which remain cornerstones of my portfolio. They both benefit from shifting consumer behavior: more online time means more ad revenue, more e-commerce, and more opportunities to innovate.
Recently read a piece on The Verge about how Amazon is expanding its logistics network even further. The broader market might be fluctuating, but Amazon’s willingness to invest in infrastructure suggests it’s looking far beyond immediate gains. It’s also a strong sign that the tech rally might still have legs, as investors reward growth in these companies.
As for Facebook, user growth continues steadily. Even with all the debates around privacy and regulation, the platform remains indispensable for advertisers. I’m keeping my eye on the rumored VR/AR devices they’re developing; it might redefine how we interact online. So while some folks are rotating into other sectors, I’m holding tight to these positions.
Sure, we have vaccine rollouts and “return to normal” conversations, but tech’s role in everyday life isn’t going backward. Remote work, online shopping, and digital entertainment are part of the new normal. In my eyes, that’s an ongoing catalyst for companies like Amazon and Facebook/Meta—which is why I’m still bullish on them going into 2021.
EveryonelovesAmazon buying Whole Foods. Some so bullish they worry Amazon is now too powerful. Why aren’t pundits questioning a tech company buying a 36 year old grocer for $13.7 billion? Why is this deal a sure thing to so many?
The Numbers
Revenue and profit of Whole Foods
Whole Foods is healthy but stagnant. 2016 revenue came in at $15.7B and $507mm of income. This income is lower than the two previous years. Sales have declined in six straight quarters. Whole Foods closed nine stores in February. At $500mm of income a year, Amazon is 27 years away from recouping the $13b spent. Of course this isn’t Amazon’s plan. Amazon believes they can modernize Whole Foods, improve logistics and empower online purchasing. Using the 462 Whole Foods locations for Amazon’s needs is the icing on the cake.
Competitive Advantage, Company Mission and Identity
Google & Motorola. Microsoft & Nokia. AOL & Time Warner. These are the disasters that come to mind when you think of a tech company acquiring an older company. In each example the tech company attempted to enter a space that was not part of their core competency.
Amazon has had an amazing run. Amazon has shown they can sell online better than anyone. Ecommerce at scale is Amazon’s core competency. Along the way to becoming the largest ecommerce company in the world Amazon had to learn how to create software at scale efficiently. AWS was born from this and Amazon developed a new core competency. AWS has been a massive success, generating $12.2B in revenue with a 31% profit margin in 2016. But Amazon has become drunk with success. AWS has lead Amazon to believe they can do everything. Core competencies be damned.
Amazon’s Former Vision –
Our vision is to be earth’s most customer centric company; to build a place where people can come to find and discover anything they might want to buy online.
Amazon use to have an identity. Amazon sold shit online and wanted to sell anything you could imagine online. This vision was edited to “Our vision is to be earth’s most customer centric company” which is broad and meaningless. It would have been a lot harder to justify a brick-and-mortar purchase with the old vision statement.
Midas Touch?
Some only remember the hits – Amazon.com, AWS, Kindle and Alexa but there have been failures as well. A $170mm write down on the Fire Phone. A $175mm loss on a LivingSocial investment. Failed attempts at payments (WebPay), auctions (Amazon Auction) and Q&A (AskVille). Not everything Amazon touches turns to gold.
Why Whole Foods?
I don’t love Amazon buying a brick-and-mortar store but the $5tn market size of the food retail industry is attractive for Amazon. Is Whole Foods the best fit? Whole Foods is known for their high-end, expensive food and stores. Amazon is known for their low prices. Do the customers of Whole Foods want lower prices? Sounds silly but some believe the high prices at Whole Foods keep the riff raff (like me) out and make the store more desirable to their core customer.
There are two grocers who seem like a better fit. Trader Joe’s, with their 461 stores in 41 states and low price model. Kroger, with ~2700 locations in 31 states and a $20b market cap also seems like a better fit. I’d love to know what other options Amazon considered and why they settled on Whole Foods.
Stretching Thin
Ben Thompson believes Amazon’s goal is to take a cut of all economic activity. Is that feasible? Is Amazon getting too big for their britches?
Ben Thompson –
I said at the beginning that Mackey mis-understood Amazon’s goals, strategies, and tactics, and while that is true, the bigger error was in misunderstanding Amazon itself: unlike Whole Foods Amazon has no desire to be a grocer, and contrary to conventional wisdom the company is not even a retailer. At its core Amazon is a services provider enabled — and protected — by scale.
Indeed, to the extent Waterloo is a valid analogy, Amazon is much more akin to the British Empire, and there is now one less obstacle to sitting astride all aspects of the economy.
In Ben’s bullish post he compares Amazon to the British Empire. Does Ben remember the British Empire’s fate? In the British Empire’s attempt to control all economic activity they stretched themselves too thin. The colonies and territories under their thumb revolted.
Can this happen to Amazon? Will Amazon’s ambitions cause customers to revolt? For example, if Amazon Video becomes more of a threat to Netflix will Netflix move away from AWS instead of feeding their competition?
Bottom Line
Keep in mind 70%-90% of M&A deals fail. Amazon’s purchase of Whole Foods is far from a no-brainer. This deal is a risky $13b bet with tremendous upside. Can Amazon utilize Whole Foods to improve what Amazon does best – allowing people to buy stuff online? Or will the Whole Foods deal become an expensive lesson on focusing and staying humble?
Bezos is no idiot. In fact, I believe he’s masterful in his handling of Wall Street. You can play the ever-growing profit game, but unless you’re Apple, you will undoubtedly fall victim to the law of large numbers sooner or later. Then good luck recovering your stock from stagnation.
Or you can plow your profits back into initiatives that continue growth. And if you have the right type of business, which Amazon does, you can live off the cash flow. As a result, you don’t really need profits to operate, but few people realize this. So, again, they demand to see them from time to time.
And, again, Bezos is happy to show them from time to time. But it’s more for show than anything else. Yes, Amazon can turn a profit if it chooses to. And don’t you forget it! (At least for a few more quarters until you do once again.)
Profits aren’t necessary to operate but they’re ultimately why you’re in business. Is Bezo’s being a genius or arrogant? Do you let the cash flow determine how much money you invest into new initiatives or does the merit of the initiative drive what you invest in?
The question you have to ask yourself when evaluating Amazon is are they investing in initiatives that continue their growth or could they have spent the money better else where?
Amazon believes it can do it all. As much ink that has been spilled on Apple and their arrogance, Apple stays relatively focused and does not appear to think they could or should do it all. Apple sells phones, tablets and computers. They do a lot of other stuff but all of the other efforts are around making sure they sell a bunch of phones, tablets and computers.
Apple invests in what they think will return a large bang for their buck. If they don’t see anything obvious to invest in that utilizes what they specialize in, they hoard the cash. Eventually they give it back to the shareholders or buy back their own shares.
Amazon attempts to invest all the money they have back into initiatives that aren’t necessarily towards moving their main focus forward, which is “Sell a bunch of shit online”. They make hardware, they sell hosting services, they make original TV programming, they make games, yet none of these appear to have a measurable impact on the amount of goods they sell through the store, their cash cow.
I like that Amazon is investing in the future and thinking about the long-term versus appeasing Wall Street with short-term profits. I question how they are investing that money and the general lack of focus and specialization.
Disclaimer – I own a couple of shares of $AMZN and do not currently plan to sell.
