Key takeaways about Amazon's future from Bezos' last shareholder letter

Earlier this year, Jeff Bezos announced that he shall be stepping down as Amazon’s CEO - handing the day-to-day to AWS chief Andy Jassy.

Amazon is getting a new CEO for the first time in 27 years.

Key data from Bezos’ last shareholder letter indicates where Amazon may be going under Jassy’s stewardship. Bezos’ letter has highlighted a common element in all that Amazon does - value creation.

Total Value Created - Bezos’ last letter focuses on the value Amazon creates. Amazon’s Q4 filing revealed it spent over $42 billion on “technology and content” in 2020, validating Bezos’ claim that “invention is the root of all value creation”. Adding up all the metrics from the last year, Bezos argues Amazon creates over $300 billion in value a year.

Prime Expansion - Amazon’s most prized milestone is perhaps one that reflects its success in the subscription business - 200 million Prime members. Prime’s one-day shipping led to the company spending $21.4 billion on shipping in Q4 and also growing its fulfillment center footprint by 50% in 2020.

Time Value - In his letter, Bezos estimated Amazon saves its customers 75 hours a year over trips to the stores. At a rate of $10 an hour, Amazon created a cumulative $126 billion in value for its 200 million prime members.

Third-party sellers - Amazon’s marketplace hosts over 1.9 million small and medium businesses, which constitute over 60% of retail sales on the platform. Adding a dollar value to this metric, Bezos said that SMBs made approx. $25 billion from Amazon last year.

Employment - Amazon has over 1.3 million employees around the world, who earned $80 billion in income, $11 billion in benefits, payroll and taxes.

What’s next for Amazon?

It’s $1 billion investment in Rivian is expected to put ten thousand electric vehicle delivery vans on the road as early as 2022, with 100,000 total by 2030.

Its investment in ZeroAvia piloted the world’s first hydrogen-electric flight last year.

Amazon put $11 billion into video and music content in 2020, and may still be running to buy the NFL Sunday ticket service.

Amazon just announced a $250 million venture fund to support Indian startups digitizing SMBs in India - Amazon’s most important growth market after a failed expansion in China.

Where do you see Amazon headed?

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The total value created through Amazon ecosystem to its shareholders, employees, suppliers is astonishing.

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Indeed! I wonder why Amazon’s stock price hasn’t moved much in the past 9 months?

That’s a billion-dollar question but the share price of Amazon is already at a price point where it can’t move up and down like other new tech companies.

Apple 1 year back $69, now $134.
Google 1 year back $1261, now $2282.
Amazon 1 year back $2393, now $3399.

One of the Reddit Comment on Amazon Share price.

“Amazon is practically a saving account compared to other tech stocks. It’s for your 30+ year pension portfolio, not to sit and expect weekly returns for.”

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That’s an interesting take! Their free cash flow generation is pretty high, which allows them to keep tax harvesting into eternity by reinvesting and growing.

The only downside of this approach being - low dividends. I like the 30-year horizon analogy, but think it’s less likely that passive funds would prefer holding amazon over a dow or coca-cola when it comes to the dividend bit over the long term.

Investors need either one of the two - interim cash flows through dividends or capital appreciation. As Amazon grows, and price appreciation stagnates, it will need to build an appetite for dividends - which shall take time considering the current state of things.

If outflows increase due to a lack of both dividends and appreciation, it may trigger a split.

If and when this happens - largely depends on how successful some of Amazon’s hundred-billion-dollar bets are - Rivian for instance, shall take on Tesla.

What are your thoughts on this?

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