Democrats fell all over themselves this week promising to break up Amazon (NASDAQ:AMZN). Even Andrew Yang, a former technology executive, got into the act. To this, CEO Jeff Bezos might say quietly, “throw me in that briar patch.” If anyone is going to break up Amazon, it’s Amazon.
Amazon is more than just a retailer. It may be the only tech company on the planet that can go toe-to-toe with China’s Alibaba (NYSE:BABA) and JD.com (NASDAQ:JD), and hope to win.
So far in 2019, however, investors aren’t feeling that love. Amazon shares are up 20% year-to-date, but that’s from the artificial low of December’s tech wreck. The average stock on the Nasdaq Composite is up 23%.
The best thing Amazon can do to change that is simply split itself up.
AWS Is a Category Killer
Amazon Web Services represented over half of Amazon’s operating income in the second quarter of the year. It is growing at a 40% rate, and that doesn’t account for the business it does with Amazon’s other operations. Add that to the total and it’s probably worth $300 billion, easily.
AWS owns about one half of the public cloud market. It has three times the share of Microsoft (NASDAQ:MSFT), 10 times the share of Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google, and it is growing in line with the market.
Amazon is doing this without a lot of acquisitions or hiring, which has been Google’s strategy under Google Cloud CEO Thomas Kurian, a former Oracle (NYSE:ORCL) executive. The latest AWS acquisition is INLT, whose software helps online merchants import goods.
Amazon keeps breaking open new niches. It’s still favored to win the U.S. Department of Defense’s Joint Enterprise Defense Infrastructure contract, because it already runs the CIA’s cloud. AWS even ran former President Barack Obama’s 2012 campaign.
Separating AWS from the rest of the company would ease antitrust concerns and let AWS go toe-to-toe with Microsoft and Google in cloud applications.
Yeah, Massachusetts Sen. Elizabeth Warren, throw Amazon in that briar patch.
Amazon Tech Products
Even an AWS split would still leave an enormous tech company.
Amazon is killing Apple (NASDAQ:AAPL) in tablets with its Fire line. It’s killing Google in the next big interface with its Echo speakers. Its Kindle e-readers and marketplace are the book market.
Amazon Prime Video is a lot closer to competing with Netflix (NASDAQ:NFLX) than Walt Disney (NYSE:DIS) is, because both companies ride on AWS and serve global markets. Its Amazon Studios is already a player in Hollywood, and a breakup would let it grow unhindered by antitrust concerns.
Amazon advertising is a $10 billion business. Its infrastructure keeps turning merchants into billionaires. Over half the revenue of its stores is coming from third-party merchants. Without Amazon, the e-commerce market would belong entirely to Walmart (NYSE:WMT), much as the retail business itself does.
And Amazon already separates products and services in its quarterly report. Its retail operations should do over $150 billion of business this year. Amazon products should account for about $70 billion of those sales. That part of the company is growing at about 10% per year, while the services side is growing at 20%.
The Bottom Line on AMZN Stock
There’s a famous story of John D. Rockefeller playing golf in 1911, when an aide came to tell him the Supreme Court had broken up his Standard Oil monopoly.
Asked for his reaction, the old man was supposedly heard to mutter “buy Standard” before he made his putt.
Jeff Bezos is as bald now as Rockefeller was then, but if the government did demand a breakup, his reaction might be similar. Buy Amazon.
Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental story, Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in BABA, MSFT, AAPL and AMZN.
