It’s increasingly clear that Amazon (NASDAQ:AMZN) is not one business but three, each with its own trajectory. AMZN stock is down, though less than 1%, in the last three months.
I have suggested breaking up the company, rather than waiting for government to do it. In the short run this may or may not increase the market capitalization, now growing at less the a quarter the rate of the S&P 500 index, up 23.4% year-to-date versus Amazon’s 5.54%.
In the longer run, however, it would unleash a flood of global innovation, as well as get bureaucrats around the world off its back.
Cloud is Star for AMZN Stock
It’s the Amazon Web Services (AWS) cloud that’s the star. “As a computing backbone for many organizations, AWS is on its way to becoming a world computer,” wrote columnist Richard Waters in The Financial Times earlier this week.
AWS revenue for the first nine months of 2021 grew by 35%, at scale. Operating income for the period came to almost $13.2 billion, or 29% of revenue. That’s nearly 62% of the company’s total operating income.
Amazon built the cloud to support its store and used the store’s cash flow to support it. But it’s clear that AWS can now handle the $5 billion per quarter load. Alphabet (NASDAQ:GOOGL), remember, is still losing money on Google Cloud.
Separating the cloud from the store would make AWS better equipped to tackle Microsoft (NASDAQ:MSFT), whose cloud-based software has made it the world’s second-most valuable company. (It keeps trading the title with Apple (NASDAQ:AAPL).) The value of Amazon Cloud would be small compared with its rival Cloud Czars. But that is an advantage when the antitrust police show up.
At its re:Invent conference this week, Amazon is announcing a host of great innovations. The cloud has spawned its own semiconductor design house, which can compete with Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD).
The Network is an Opportunity
Amazon Prime Video may be the only force that can take on Netflix (NASDAQ:NFLX), with its $284 billion market cap.
The success of Squid Game, originally bought by Netflix for Korean audiences, has moved Amazon to hire an executive from ViacomCBS (NASDAQ:VIAC) specifically to curate regional fare. Prime now has 21% of the U.S. streaming market, and I’ve seen shows on it from Italy, Spain, Latin America, India and Russia, just in the last year.
At this point, Prime Video could swallow ViacomCBS whole with its $20 billion market cap. As an independent company it might get the opportunity. As part of Amazon, it won’t.
Everything Store is a Drag
The everything store, meanwhile, is becoming a drag on earnings.
Amazon’s delivery service should be bigger than those of UPS (NYSE:UPS) and FedEx (NYSE:FDX) next year. But Amazon is accused of polluting the air around congested ports. The executive who was overseeing its cashier-free store operations is leaving. The problem of fake reviews just gets worse.
The Amazon Marketplace, which represents over half the store’s sales, is now being rolled-up into a few large suppliers. They accuse it of driving up costs to inflate its own profits. It’s a mess that new CEO Andy Jassy, who was running AWS, had no hand in making, and may be unequipped to handle.
Meanwhile, it’s not clear that those large suppliers even want to align with juggernaut marketplaces, if jewelry maker/retailer Pandora (OTCMKTS:PANDY) is any indication. The Danish firm’s CEO, Alexander Lacik, rejecting the suggestion that he needs Amazon or Farfetch (NYSE:FTCH), said this week, “If you’re a small and unknown brand, marketplaces offer a great opportunity, because they provide you with an audience. I already have an audience.”
The Bottom Line
The future for AWS is so bright you need shades.
Meanwhile, the store’s problems will only grow as it gains a significant share of the retail market. It’s not yet bigger than Walmart but it’s getting close. It’s now seen as the big, evil giant of retailing, which was once Walmart’s province, and which helped slow its growth.
Separate the three faces of Amazon and you change this story’s trajectory. You unlock value. You get the government off your back. Like they say at Nike (NYSE:NKE), just do it.
On the date of publication, Dana Blankenhorn held long positions in AMZN, MSFT, AAPL and NVDA. 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. Just in time for the holidays he has a collection of COVID-19 stories at the Amazon Kindle store. Write him at email@example.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.