Bezos is stepping down and Amazon is in a great shape

Arguably few have made headlines this week more than Jeff Bezos, the founder and current CEO of Amazon. The company announced yesterday that Bezos was stepping down in Q3 this year and is going to be replaced by Andy Jassy, the boss of AWS. While it is surprising, I hardly find the news shocking. Bezos hasn’t been on the company’s earnings calls for years. He appeared in front of Congress last year, showing that he didn’t know in details the company that he founded and is still running. To be clear, I don’t blame him. If he doesn’t spend much time in the office yet rather spends it on other projects that interest him and the company still does exceptionally well, why not? In his letter to the whole company, Bezos said:

I’m excited to announce that this Q3 I’ll transition to Executive Chair of the Amazon Board and Andy Jassy will become CEO. In the Exec Chair role, I intend to focus my energies and attention on new products and early initiatives.

As much as I still tap dance into the office, I’m excited about this transition. Millions of customers depend on us for our services, and more than a million employees depend on us for their livelihoods. Being the CEO of Amazon is a deep responsibility, and it’s consuming. When you have a responsibility like that, it’s hard to put attention on anything else. As Exec Chair I will stay engaged in important Amazon initiatives but also have the time and energy I need to focus on the Day 1 Fund, the Bezos Earth Fund, Blue Origin, The Washington Post, and my other passions. I’ve never had more energy, and this isn’t about retiring. I’m super passionate about the impact I think these organizations can have.

Source: Amazon

If you’re more interested in the strategic direction of the company and side projects, why not giving opportunity to someone else who is hungry for the top job and to manage the day-to-day operation. Plus, I don’t imagine he enjoyed being called to testify in front of Congress, especially when the regulatory scrutiny on big tech companies has intensified. And I think Amazon is in a great shape to continue to grow with the new CEO. Here is why:

Amazon recorded $125 billion in sales in Q4 FY2020, making its four-quarter rolling average revenue now almost $100 billion. For Q1 FY2021, Amazon’s guidance is to generate between $100 and $106 billion in revenue. More impressively, the quarterly revenue grew at least 37% YoY each. In terms of major business segments, North America is still the biggest piece of the pie, yet it still outgrows International and AWS. The latter is now a $45 billion run-rate business. Looking deeper at the business lines, Online Stores, 3rd Party Marketplace and AWS are still the three biggest, but the fastest growing is Advertising, which stands at the run rate of $21 billion. In terms profitability, Amazon used to run in the red with International. Not any more. International has been profitable for the last 3 consecutive quarters, making all three major business segments of Amazon profitable.

Furthermore, Amazon in Q4 FY2020 posted $31 billion free cash flow TTM, which is only slightly less than 50% of their operating cash flow TTM. It implies a heavy CAPEX back into the business. Also, Amazon, on average, spends about $15 billion a quarter on shipping costs, which constitutes around 23% of the combined sales of its Online Stores and 3rd Party Marketplace. While it’s a lot of money, if it helps Amazon achieve great services and customer satisfaction in multiple markets, it will be a tough challenge for anyone who wants to compete with them.

In my view, the results that Amazon boasted are nothing, but highly impressive. The company has a stellar reputation with consumers and owns the relationship. That’s why it can sell advertising, subscriptions, its own goods and goods of other parties. There are still a lot of room to grow. Not only can it still gain market share in the retail market in the US, but it can also expand internationally into more countries and continue its current profitability overseas. AWS can still grow, especially when Covid-109 has spurred companies to become digital. The brand, the scale and the infrastructure that Amazon put in place are gigantic advantages that aren’t easy for challengers to overcome. The culture that Bezos has instilled in the last 27 years is still there and even though he is passing the CEO torch, he is still around to take actions, if necessary.

Amazon's revenue and YoY growth
Figure 1 – Amazon’s 4-quarter rolling average in Revenue and quarter YoY Growth
Amazon Business Segments' Revenue
Figure 2 – Amazon’s Business Segments’ Revenue
Amazon's business segments' revenue
Figure 3 – Segment Revenue
Amazon's Operating Margin
Figure 4 – Amazon’s Operating Margin
Figure 5 - Amazon's Free Cash Flow TTM
Figure 5 – Amazon’s Free Cash Flow TTM
Amazon's Shipping Costs
Figure 6 – Amazon’s Shipping Costs

2 thoughts on “Bezos is stepping down and Amazon is in a great shape

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