Is there anything about e-commerce that's easy? Last night we had not one, but two calls that were discouraging about the difficulty of making everything work in e-commerce, at least in terms of predicting business, and it's beginning to dawn on me that competition and execution are being called into question by all who critique the fray.
The two companies I am talking about? Adobe (ADBE) and FedEx (FDX) . Now let me say at the outset that people who listened to both calls will be aghast that I lump in Adobe with FedEx. Adobe made some missteps in its customer experience management, especially from the mid-market portion of the business that stemmed from Marketo, the account-based marketing and analytics platform that it purchased a year ago. The company admitted that their bookings did not meet their expectations and their consulting services disappointed.
It was a small miss, but one that kept the company from raising its forecast, and instead you got an ever-so-slight trim. While Adobe is one of the cheapest of the large capitalization cloud kings, it still sports a 36x P/E ratio, and that's not maintainable if these bookings problems aren't addressed and fixed by the company's November 4 analyst meeting.
FedEx, on the other hand, was a total blow-up start to finish. A good part of it -- if not a great part -- is the inability of this great company to predict what's going to happen to trade because of the trade wars, with Fred Smith, the super-smart CEO, openly bemoaning how tariffs are slowing down the whole world given how interrelated international trade is right now. He calls out, for example, how Germany's weak BECAUSE China's weak. Fred's a trained economist so he knows the drill.
But the analysts believe the near billion dollar shortfall has more to do with poor execution than Smith and company will admit. There was open rebellion on the call, the type of criticism that you only do when you feel you have been totally bagged by management or because management's been suboptimal not just in its forecasting but in its execution.
I want to be more forgiving. I think that FedEx is in an impossible position. The competition, whether it be DHL, the post office, UPS (UPS) or Amazon (AMZN) , is constantly innovating. FedEx is trying to take all four on everywhere in every place and the expense to do that is mind-boggling. Plus, it dropped the last bit of its Amazon business, which turned out to be surprisingly profitable, but at a cost down the road given Amazon's asks, which seem huge. As Smith said "While the Amazon contracts represented only a small portion of our revenue, the nature of our business is such that near-term profits will be adversely affected since the last bit of volume has significant flow through to the bottom line."
That does come as a bit of a shock given that Amazon had been referenced on January 29 as less than 1.3% of total FedEx revenue.
The analyst fury seems to have to do with that surprise, the amount of capital expenditures that are needed, the higher expenses that are attributed to labor and the overall inability to integrate Europe to their satisfaction.
I come back to something different: I think the competition for e-commerce business, whether it be at Adobe or at FedEx, is just beyond intense.
For example, I wonder, as the excellent Goldman analyst, Heather Bellini did in her question on the Adobe call, if there isn't just too much competition in the Marketo end of marketing for Adobe. I would have asked, in a more impolitic way, is this Salesforce (CRM) gunning for that business after making a series of acquisitions? The two seem to be going hammer and tongs at each other now -- and that causes real problems for Adobe, and perhaps for Salesforce.com.
I feel FedEx might be having the same problems. These other opponents may be cherry picking the good stuff and leaving FedEx to deliver on lots that's not that profitable at the same time there is a macro slowdown. Both business to business and consumer are issues, the former because of a slowdown in the industrial economy, the latter because it's just too darned expensive to get it right.
No matter, I want to be more gentle about the misses here: It's not totally their the fault, in this case, it's competition in an ever-evolving e-commerce world that just makes it too darned hard right now to estimate how well you can do and how well you can execute. And it felled both Adobe and FedEx at the same time.