Jeff Bezos is stepping down as CEO of Amazon, and Andy Jassy will take over.
Bloomberg/David Paul Morris
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Amazon.com
Jeff Bezos, the company’s creator, will step down as CEO on Monday, the company’s 27th birthday. Andy Jassy, a 24-year Amazon veteran who founded and oversaw Amazon Web Services (AWS), the company’s major cloud-computing sector, will take over the reins. Jassy is up against a “difficult comparable,” as Wall Street analysts like to say. Bezos was always going to be a difficult act to follow, and he’s leaving the job in the best possible shape. (If all goes well with his flight to space later this month, he’ll remain executive chairman and the company’s largest stakeholder.)
During the epidemic, Amazon’s (NASDAQ: AMZN) business soared. Sales increased 44 percent year over year in the first quarter, the company’s strongest quarterly growth rate since 2011, and net income was $8.1 billion, its highest quarterly profit ever. Amazon will add more than 500,000 individuals in 2020, bringing its entire workforce to more than 1.3 million. In the first quarter, AWS revenues increased by 32% to $13.5 billion, representing a yearly run rate of well over $50 billion. As a result, Amazon is one of the world’s largest enterprise computing companies—larger even than Microsoft.
Oracle
(ORCL),
SAP
(SAP, for short)
Salesforce.com
(CRM). Amazon’s online retail sector generated $52.9 billion in revenue, up 41%. Fulfillment and delivery services provided by third-party sellers increased by 60% to $23.7 billion (about the size of Amazon).
FedEx
Subscription services, mostly Amazon Prime, brought in $7.6 billion in revenue, up 36%, for a run rate of more than $30 billion (slightly higher than last year).
Netflix
). Revenue from “other” sources, largely advertising, increased by 77% to $6.9 billion. Amazon’s market capitalization has risen to $1.7 trillion, trailing just Apple.
Apple
(AAPL) as well as
Microsoft
(MSFT) is a publicly traded company in the United States. Despite the high numbers, Amazon’s stock has been relatively flat for nearly a year. It’s only up 6% year to date, compared to 15% for the S&P 500 index. Investors are wary for a variety of reasons, including CEO churn. When it comes to changing founder CEOs, large IT businesses have a mixed track record. Apple CEO Tim Cook, who took over from Steve Jobs in 2011, is a success story. Since he took charge, Apple’s stock has increased by 1,000%. The cautionary story is Microsoft, where Steve Ballmer took over as CEO in January 2000 when Bill Gates stepped down, and lasted in the position for 14 years. With Ballmer at the helm, Microsoft’s sales increased, but the stock did not. There are also concerns that once the economy recovers, Amazon’s e-commerce boom may stall. Jassy’s task is to create a soft landing while also driving growth in other sectors to compensate for any e-tail slowdown. Regulatory scrutiny, on the other hand, continues to be a drag. Regulators and legislators are paying close attention to Amazon’s anticipated $8.5 billion acquisition of MGM Studios. Lina Khan, the newly appointed Chair of the Federal Trade Commission, has made a career out of concentrating on Amazon’s market domination. She wrote the now-famous Yale Law Review paper “Amazon’s Antitrust Paradox” in 2017. Amazon formally requested Khan’s recusal from any role in antitrust proceedings concerning the corporation last week. Amazon may get its way, but the fact that it has to ask underscores the danger that regulators now pose. The worst-case scenario, as outlined in a set of proposals currently being debated in the United States House of Representatives, may force Amazon to shut down activities that directly compete with customers, such as its third-party sellers. Amazon’s ability to sell its own branded products could be jeopardized as a result. The less obvious worry is that heightened regulatory scrutiny will stifle Amazon’s ability to expand through acquisitions. The outcome of the MGM acquisition will be a crucial test case. Amazon is likewise dealing with labor concerns, despite the fact that employees at the company’s Bessemer, Alabama, site voted against unionization. The organization is working hard to earn the titles of “Earth’s Best Employer” and “Earth’s Safest Workplace.” Amazon is still likely to be a target for Big Labor. The Teamsters endorsed a motion supporting a wide unionization campaign for Amazon’s staff at its annual convention late last month. In terms of the stock, I’ve already stated that Amazon has the potential to be Earth’s Best Stock, especially in the long run. In my April 19 column, I mentioned a Jefferies analyst Brent Thill’s sum-of-the-parts research, which predicted a $3 trillion market value for Amazon in three years. AWS is valued at $1.2 trillion, Amazon’s core retail business is valued at $1 trillion, and Amazon’s ad business is valued at $600 billion. There are also some exciting aspects, such as the fast-growing logistics division and the company’s still-developing healthcare services division. When you do the math, even the negative argument on Amazon—a forced breakup—looks optimistic. If AWS were a stand-alone company, it would be given the same sales multiple as a hot cloud-software firm.
Snowflake
AWS would be worth more than $4 trillion (SNOW). That’s laughable, but it gives you an idea of the scale and power of Amazon’s core assets. Jassy’s Amazon remains an obvious investment for long-term investors. Eric J. Savitz can be reached at eric.savitz@barrons.com./n
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