Tuesday, May 1, 2018

Salmon on Amazon: apparently "demonstrably false" is not a fatal flaw in a popular narrative

Very sharp piece by Felix Salmon (one that's also extremely relevant to our technology and hype megathread) on how the Amazon narrative drives the stock price and vice versa. Among other things, Salmon effectively proves that the Amazon-as-disruptor effect -- where business journalists invariably attribute every development to Amazon -- is almost always bullshit.

The sad part is (and I in no way mean this as a knock against Salmon) there's no reporting here. Felix is simply pointing out facts that are and have been widely known for a long time. The reporters who have kept this narrative going knew (or should have known) that the numbers completely undercut it but they chose the good story over good journalism.
Amazon is a perfect case in point. For one thing, its market capitalization of $814 billion compares to net income, over the past 12 months, of $3.9 billion. That means it’s trading at a price-earnings ratio somewhere north of 200. Compare that to a ratio of about 24 for the stock market as a whole. If Amazon traded on the same multiple of earnings as everybody else, its stock would fall by roughly 90 percent.

The stock is supporting a narrative, which in turn is supporting the stock. And the narrative is, frankly, looking a bit shaky these days.


Amazon similarly never fails to appear in just about any story about the so-called retail apocalypse—a phenomenon that is much, much bigger and more complicated than “people used to shop at stores, but now they just order from Amazon.” After all, Amazon still accounts for only 4 percent of American retail sales. Indeed, with its Whole Foods acquisition, Amazon clearly considers in-person shopping to be entirely aligned with its mission of customer service and convenience. The retail apocalypse is, at heart, a real estate story (too many malls built in areas where no one wants to shop), much more than it is an Amazon story.

Here’s a game you can play along at home: Pick a story, more or less at random, about any company that sells consumer goods and that is doing badly or worse than expected. Then count the paragraphs before the word Amazon appears. Take this story about Procter & Gamble, Unilever, and NestlĂ©, for instance; the fourth paragraph has the requisite clause about “Amazon.com Inc.’s rising prowess in selling more household staples.” But there are no numbers attached to that claim, maybe because Amazon, even if it’s growing, still has less than 1 percent of household-staples sales.

And while Amazon’s entry into the fashion business is certainly noteworthy, that doesn’t automatically mean it’s “disrupting fashion retail,” as the Financial Times would have you believe. That would be hard, with just $25 billion or so in revenues—just 2.5 percent of a $1 trillion market.
Michael Hiltzik also has some worthwhile thoughts on the subject, and he even works in a Dr. No reference.

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