Who's Fault Is It That Wall Street Can't Understand Amazon.com?

from the maybe-if-you're-selling-a-book... dept

It's been interesting to watch Amazon.com evolve over time... from the company that could do no wrong on Wall Street, to the company that could only do wrong on Wall Street. While all of that was going on, the company actually did figure out ways to be profitable, using both its online store (which has tremendous customer loyalty) and their business running e-commerce operations for other companies. Wall Street, though, has always had trouble really understanding the company, and sometimes that presents problems. Nicholas Carr has written up a piece for Business Week saying that Amazon would be best served by splitting the two businesses into separate companies so that the folks on Wall Street could more fairly understand the companies and value them properly. However, there are a few problems with this argument. First, despite Carr's claim that there's no synergies across the two businesses, it seems like nothing could be further from the truth. Carr seems to assume that all Amazon provides its retail partners is "software," rather than a real service in managing their e-commerce operations, which takes a lot of experience and knowledge, much of which they get from running their own store. There is a valid claim that some of these retailers may get nervous (and even leave) because Amazon is also competing with them, creating a conflict of interest. However, that's been true from the beginning, and it didn't stop Amazon's ability to sign up customers -- even among direct competitors like Borders. The real issue here is just that Bezos hasn't done a particularly good job lately helping Wall Street understand Amazon's business (though, he's been trying with his recent focus on cash flow). Just because Wall Street doesn't understand your business though, doesn't seem like a very good reason to break it up -- especially when the combined business is making money (the point of Bezos' whole argument). Wall Street, of course, would love to break up Amazon, not just because they would better understand the business (and set up those "comparables" -- everyone on Wall Street loves their comparables), but because Wall Street makes its money breaking up and putting together pieces of businesses. It seems like Amazon has put together a reasonable and synergistic set of businesses -- and it doesn't make sense to break them up just so some analysts on Wall Street can figure them out.