Amazon (NASDAQ:AMZN) has continued to grow this year. But AMZN stock has gone sideways. At Friday’s close, AMZN was up just 2.9% on the year while the S&P 500 index is up 21.1%.
That increase belies Amazon’s operating performance. The e-everything is continuing to grow at 34% a year. It doubled net income from 2020. The company had $59 billion in operating cash flow during the first half of 2021. Capital spending of $14.2 billion could be handled with cash.
It could also write off its $19 billion in long-term debt with a check.
But this is the summer of Andy Jassy’s discontent. Jassy, who took over the CEO chair from Jeff Bezos last month, is under fire from all sides.
New Role, New Challenges
Jassy previously ran Amazon Web Services, the largest and most profitable network of cloud data centers in the world. In the second quarter, AWS still had one-third of the market. That’s more than Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) combined.
Analysts are also changing their view. They see Amazon as a mature company, whose value should be based on cash flow and value maximization. In short Amazon today is seen the way Walmart (NYSE:WMT) was a decade ago.
Wealth of Opportunities
Despite all of that, Jassy also has enormous opportunities.
I wrote in June that Amazon might benefit from a break-up. It would free AWS to grow with applications and let the logistics arm be valued on its own.
With over $50 a share in net income during the first half of 2021 alone, Jassy could institute a dividend. He could split the stock. He could buy back shares.
If the heat comes off Amazon for its size, then its plan to open stores will be seen in a different light. They’re competition for Walmart, already a competitor in logistics and nipping at the heels as the second-largest online seller.
Amazon still has enormous room to grow in retail. BestBuy (NYSE:BBY) earnings prove that. Target (NYSE:TGT) and Costco Wholesale (NASDAQ:COST) prove that. Amazon is misunderstood because it’s both a product and service company. By 2022 it could be bigger in services than in product, even though over half its product comes from third parties.
AWS could also use some love. It is an essential piece of the internet’s infrastructure. Its security is a question of national import. But Amazon doesn’t sell applications, like Microsoft or Google. An AWS independent of the rest of Amazon could easily buy a company like salesforce.com (NYSE:CRM).
The Bottom Line on AMZN Stock
Give Andy Jassy a chance. The fact that AMZN stock is becalmed even while Amazon keeps growing represents an opportunity for long-term investors. The price-to-earnings ratio is down to 57. The company only became consistently profitable four years ago.
In his final shareholder letter, Jeff Bezos wrote about the need for Amazon to treat its employees better, and to do better by the environment. He’s still executive chairman. He also wrote that once a company stops growing, it starts to die.
Amazon isn’t dying. My guess is that, much like Apple (NASDAQ:AAPL) a decade ago, it has only just begun to live.
On the date of publication, Dana Blankenhorn held long positions in AMZN, AAPL and MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at firstname.lastname@example.org or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.