As expected, Amazon (NASDAQ:AMZN) had a standout quarter. But of course, the main news was that CEO Jeff Bezos announced that he will step down from this position in the third quarter and take the role of executive chairman. His replacement will be Andy Jassy, who heads up the AWS cloud business. But in terms of Amazon stock, there was little impact.
But let’s first take a look at the details for the quarter. The net sales soared by 44% to $125.6 billion and the net income came to $3.3 billion, or $14.09 per share. As for the Street, the consensus was for the top line to come in at $119.7 billion and the earnings at $7.23 per share.
As for the current quarter, Amazon forecasts sales at $100 billion to $106 billion, compared to the analysts’ consensus of $95.8 billion. The operating income is expected to range from $3 billion to $6.5 billion.
The only disappointment was the cloud business. The revenues rose by 28% to $12.7 billion. Yet Wall Street was looking for $12.83 billion.
New Leadership
Bezos’s story is legendary. In 1994, he had the foresight to see the huge potential of e-commerce. He was smart to initially focus on the book business, because all the world’s books could be listed for sale. There were also the benefits of having customer reviews, one-click purchasing and data-driven product recommendations.
But Bezos was quick to expand beyond books. Not only did he greatly expand into many different product categories, but pioneered businesses like cloud computing. The result is that Amazon is one of the most valuable companies, with a market capitalization of $1.7 trillion.
Normally, when a visionary leader like Bezos steps away from his or her company, there is hit to the stock price. But it’s important to keep in mind that he has built a strong bench of managers. Besides, Amazon operates based on having many autonomous teams. This has allowed for more agility and innovation, which is no easy feat for a global organization.
Jassy is also solid choice to take the helm. He has been an employee of Amazon since 1997 and launched the AWS business, which is the biggest source of operating income for the company. This has allowed Amazon to greatly expand its platform.
As for Bezos, he will remain involved with the company, such as in terms of various projects and early stage efforts. In fact, on a conference call announcing the change, CFO Brian Olsavsky noted: “He will be involved in many large one-way door issues, which as we say one-way doors meaning the more important decisions things like acquisitions things like strategies, and going into grocery and other things.”
But he will also spend time with his outside interests like Blue Origin, the Bezos Earth Fund and the Washington Post.
The Bottom Line on Amazon Stock
The Covid-19 pandemic accelerated the secular growth trend of e-commerce. And even when things start normalize because of the vaccines from companies like Pfizer (NYSE:PFE) and Moderna (NASDAQ:MRNA), the market will likely continue to show strong growth.
E-commerce has become a natural part of everyday life – and Amazon is the dominant player. The company accounts for about 40% of all transactions in the U.S., according to research from eMarketer. It also helps that the company has built a sophisticated supply chain, bolstered with cutting-edge robotics and AI, that is monetized with the Prime system.
And while the AWS business has decelerated, this was inevitable. The revenues have gotten to a scale that makes growth tougher to churn out. There is also considerable competition from Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG). But cloud computing is another mega secular wave as companies look for more efficiencies with the IT operations. Based on data from Gartner, the spending on public cloud systems is expected to go from $257.5 billion in 2020 to $304.9 billion this year.
So for the most part, Bezos is making his transition at the right time. The company’s businesses are in fine shape and the long-term still remains bright.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the author of courses on topics like the Python language and COBOL.
