While most people are familiar with the phrase "jack of all trades," fewer remember the rest of it -- "master of none." Investors might want to ask if that's what Amazon.com (NASDAQ:AMZN) risks turning into.
Full speed ahead
We know the e-commerce king has put a lot of irons in the fire since its early days as an online bookseller. Some have worked out amazingly well, like its Amazon Web Services division, which saw revenues surge 78% last quarter to $2.1 billion and whose operating profits rose fivefold, hitting $521 million, 52% of the company's total operating income.
But there have been many more misfires, like Auctions Web, zShops, an eco-friendly diaper service, Amazon Wallet, and the Fire smartphone. CEO Jeff Bezos has certainly proven he doesn't mind virtually taunting Wall Street with big, losing bets if he can use the information gleaned from the failures to ultimately grow sales elsewhere.
Some of the many balls Amazon is juggling include:
- Amazon Prime entertainment services
- Amazon Studios
- Twitch TV
- Amazon Web Services
- Kindle devices
- Fire devices
- Amazon Pay
- Amazon Fresh
Yet it's possible that with its latest vainglorious venture, Amazon really is pushing the envelope too far.
First came the hidden-in-plain-sight start-up plan for a package delivery network to rival those of FedEx (NYSE:FDX) and UPS (NYSE:UPS). While the desire to take greater control of last-mile delivery was understandable, particularly after the Christmas debacle a few years back, vertically integrating its operations to run its own fleet of airplanes is a whole different kind of business.
A titanic pivot
But now freight-forwarding firm Flexport says the e-commerce titan is going even further by getting into the ocean freight business. It found that Amazon's China division had registered to operate in the U.S. as an ocean freight forwarder, which allows it to serve as a middleman between suppliers in one country and customers in another through the purchase of cargo space on ships that it offers for resale.
The move into the $350 billion ocean freight industry is said to be a direct challenge to Wish, a mobile commerce provider that has set its sights on beating Amazon and Alibaba (NYSE: BABA) to become the first trillion-dollar annual gross sales merchant.
But Amazon has a competitive advantage in ocean freight that even DHL, UPS, and Expeditors International of Washington (NASDAQ:EXPD) don't: its ability to harness its software and numbers-crunching capabilities to drive costs lower -- much further, in fact, than those of existing freight forwarders.
Sailing on smooth seas
Flexport was bullish on Amazon's chances of success. It noted that for a low-cost operator like Amazon, this is an optimal time to enter the market. First, it notes, the actual shipping costs are low, now. Moving a 40-foot container from Shenzhen to Los Angeles costs less than $1,300; the expenses stack up in handling logistics, an arena where Amazon and its massively automated operation excel. Further, Amazon has a reputation for being willing to lose money while building a business to critical mass. If it chooses to undercut the competition, Chinese companies looking to access U.S. markets might be particularly receptive to Amazon's entry.
Yet it wouldn't be the same on the U.S. side because as the middleman, Amazon would have insight into the wholesale costs of suppliers, data they would prefer remain confidential, since the e-commerce giant would also be a competitor.
Still, this seems to be part of a broad plan to create a global package delivery empire under one roof, one that will directly challenge FedEx and UPS. To date, Amazon has announced its intention to add thousands of vehicles to its fleet of delivery trucks; dabbled in drone delivery; acquired a stake in a U.K. delivery service; acquired a French shipping service; and launched its air cargo network. Now it's taking to the seas.
Such an extensive network might facilitate its own sales initially -- shipping is a huge expense for Amazon, costing it some $3.2 billion last quarter -- but later, third parties wanting to break free from the FedEx-UPS duopoly might find an Amazon service a welcome change.
According to The Wall Street Journal, Amazon's recent annual filing with the SEC contained language that identified the company as a "transportation service provider." That's exactly the sort of thing UPS once publicly worried about, saying it faced the risks associated with a big customer developing its "own shipping and distribution capabilities." Losing one large customer wouldn't seriously impact the delivery service, but if that customer went and set up a rival shop, it just might.
Icebergs on the horizon?
Although Amazon.com has long since become more than just an e-commerce retailer -- and really is becoming a conglomerate in the style of the old General Electric (which, ironically, is divesting its ancillary businesses to focus on core operations) -- Jeff Bezos may be biting off more than he can chew by registering to become a freight forwarder and setting up its own shipping and package handling business.
Number-crunching is one thing; running a massive, global shipping network in the air and on the seas is quite another. Investors would be right to ask just how often can Amazon.com shoot for the stars and miss before it financially impairs itself.
Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com. The Motley Fool owns shares of General Electric Company and has the following options: short May 2016 $45 calls on Expeditors International of Washington, short May 2016 $40 puts on Expeditors International of Washington, long January 2017 $42 calls on Expeditors International of Washington, and short January 2017 $42 puts on Expeditors International of Washington. The Motley Fool recommends FedEx and United Parcel Service. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.