DJ Jeff Bezos Might Be the Best CEO Ever. Why Amazon Will Be Fine Without Him. -- Barrons.com
Everyone knew the day was coming, but investors still seemed surprised by Jeff Bezos' announcement that he would be stepping down as CEO. Amazon.com has never had another chief executive, after all, and Bezos built the business from scratch into one of the world's largest companies, with 1.3 million employees, annual revenue nearing $500 billion, and a market value of $1.7 trillion.
No one has ever launched a company and steered it to a valuation of more than a $1 trillion while still at the helm. By that measure, Bezos is more successful than Steve Jobs, Bill Gates, Warren Buffett, Sam Walton, Walt Disney, Henry Ford, Andrew Carnegie, or John D. Rockefeller.
Amazon (ticker: AMZN) shares have appreciated every year since 2014, increasing more than tenfold over that span. The company has spent years pressing its advantage in e-commerce. It has a growing fleet of delivery trucks and jets servicing vast warehouses staffed by humans and robots.
And, yet, the real value driver has been the emergence of Amazon Web Services, an idea nurtured by Bezos' longtime lieutenant, Andy Jassy -- yes, the man just named to replace Bezos as CEO later this year.
In July 2002, Amazon issued a short press release unveiling Amazon.com Web Services. Bezos said that Amazon was "putting out a welcome mat for developers," adding prophetically, "this is an important beginning and new direction for us." The word "cloud" wasn't mentioned.
Today, AWS is synonymous with cloud computing. In the fourth quarter, it had revenue of $12.7 billion, boosting the total for the year to $45.5 billion, up 29%. AWS ended 2020 with a backlog of $50 billion, 68% above the total a year earlier. The business has grown more than 475% since the end of 2015, and next-year sales will easily top $50 billion. Many cloud software companies -- most of which wouldn't exist without AWS -- are trading for 20 times sales or higher. Apply that measure to AWS and the business is worth more than $1 trillion.
Jassy has served as CEO of Amazon Web Services since its humble beginning, and he became the logical successor to Bezos after the recent retirement of Jeff Wilke, the longtime leader of the company's retail business.
Taken together, there has been a lot of change for Amazon in a short period. Wilke's successor, Dave Clark, has just settled into his new role. Jassy is getting the top job. Bezos is moving to executive chairman. And someone yet to be named will take over AWS.
If there's any reason for caution about Amazon, it would be a potential leadership vacuum at AWS just as competition in the cloud market is heating up.
There are now real rivals for AWS, although the precise math is fuzzy. Alphabet (GOOGL) had $3.8 billion in cloud revenue in the quarter, up 47%, and the company said its Google Cloud Platform, which competes with AWS, grew even faster. But that segment also includes Google Workspace, which competes with Microsoft Office.
Microsoft (MSFT) had "connected cloud" revenue of $16.7 billion in its latest completed quarter, but that includes more than just Azure, Microsoft's direct rival to AWS. Microsoft also puts Office 365 and a cloud version of its Microsoft Dynamics enterprise application business in its cloud bucket. Oracle (ORCL) and IBM (IBM) also claim substantial cloud businesses. But Amazon remains the dominant player, and not by a little.
There are several reasons that Amazon is unlikely to miss a beat through the CEO transition.
First, as executive chairman, Bezos said he intends to spend time thinking about new products and early initiatives, where he has always thrived. "Keep inventing, and don't despair when at first the idea looks crazy," he wrote in a letter to Amazon employees last week. "Remember to wander. Let curiosity be your compass. It remains Day 1." Bezos is the company's largest investor, with a stake worth about $200 billion.
Second, Jassy has been at Amazon for 23 years. It's the only place where he's worked since graduating from Harvard Business School in 1997. He has a strong reputation among Amazon watchers, Wall Street loves him, and Bezos trusts him. So, Jassy was the obvious choice.
Finally, the transition is happening at a moment of strength for Amazon. In the fourth quarter, its sales were $125.6 billion, up 44% from the total a year earlier, blowing past Wall Street estimates. Profits of $14.09 a share in the latest quarter were nearly double analyst forecasts, even though the company spent more than $4 billion in the period to protect workers against Covid-19.
Jassy was already running the most important part of Amazon. This is no longer an e-commerce company with a cloud computing hobby; AWS is now worth more than the retail segment.
And yet it's hard to separate Amazon from Bezos. The stock fell 2% on the transition news, despite being accompanied by the banner earnings results. Any weakness could be a buying opportunity. This past week, Morgan Stanley analyst Brian Nowak reiterated his Overweight rating on the stock, upping his price target to $4,200 from $3,900 and setting a "bull case" target of $5,000, 50% above Amazon's recent close of $3,352.
His view is that Bezos will still be around, Jassy knows what he's doing, the bench is deep, e-commerce is still accelerating, and so is Amazon Web Services.
The bottom line: Amazon is ready for its post-Bezos close-up.
Write to Eric J. Savitz at firstname.lastname@example.org
(END) Dow Jones Newswires
February 05, 2021 18:13 ET (23:13 GMT)
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