Is Amazon’s $1 Billion Investment in Industrial Innovation a Good Move?

  • Amazon (AMZN) announced the $1 billion Amazon Industrial Innovation Fund.
  • The company continues to push the envelope when it comes to squeezing efficiencies out of its business.
  • While investing in industrial innovation is always a good idea, it could send the wrong message to frontline employees, hurting AMZN stock in the process.
What Would Happen to Amazon Stock If AWS Was Spun Off?

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Amazon (NASDAQ:AMZN) announced the creation of the Amazon Industrial Innovation Fund (AIIF) on Apr. 22. The company is investing $1 billion into companies that can help it become more efficient. On the surface, it is hard to argue anything other than this being good news for owners of AMZN stock.  

“With our scale, Amazon is committed to investing in companies that will ignite innovation in emerging technologies that can help improve employee experiences and safety while seamlessly coexisting with workforces across the supply chain, logistics, and other industries,” stated Alex Ceballos Encarnacion, Amazon’s vice president of worldwide corporate development. 

Like any announcement, the proof will be in the pudding. While the company emphasizes that the innovation it seeks to invest in will help its employees on the front line, Amazon’s track record is anything but good.

If you’re an Amazon shareholder, I would be cautiously optimistic about this initiative by the company. However, like many things Amazon does, don’t be surprised if it doesn’t turn out to be good for frontline employees. 

AMZN, Inc. $2,787.82

A Billion Dollars Will Not Move AMZN Stock

While any investment by Amazon is a good thing, investors should consider the amount committed in the context of the big picture. For example, Amazon spent more than $56 billion on technology and content in 2021, 56 times what it’s investing in AIIF. 

The company defines technology and content as follows:

“Technology and content costs include payroll and related expenses for employees involved in the research and development of new and existing products and services, development, design, and maintenance of our stores, curation and display of products and services made available in our online stores, and infrastructure costs.”

You could argue that a large chunk of this spending is for employee salaries and that the ultimate amount invested is considerably less than $56 billion. However, I think you get my point: It already spends a boatload on innovation. 

How will an additional one billion dollars move the needle for frontline workers or Amazon’s share price? The simple answer is it won’t. At least, not in the near term.  

However, as investments get made — it has already made five in specific companies, including Modjoul, a developer of wearable safety technology to reduce musculoskeletal issues — Amazon stakeholders will be able to assess whether AIIF is helping to improve the employee experience.

Until then, it’s just words. 

The Unions Are Coming

As you may be aware, Amazon employees in Staten Island, New York, recently voted to unionize, the first such event in the company’s history. It seems more of its warehouses across the country will unionize in the months and years ahead despite initiatives such as AIIF. 

Until the company walks the talk, no amount of spending will turn the tide of unionization. This ship has sailed. For shareholders’ sake, I hope the company views the Staten Island vote as a wake-up call that it must take the needs of its frontline workers seriously, or one day it’s going to hurt Amazon’s share price. While that day has yet to come, it will get here sooner than you think.

The Guardian reported the following about the Staten Island operations:

“Amazon workers there are seeking longer breaks, paid time off for injured employees and an hourly wage of $30, up from a minimum of just over $18 per hour offered by the company. The estimated average wage for the borough is $41 per hour, according to a similar US Census Bureau analysis of Staten Island’s $85,381 median household income.”

It’s incredible in this day and age that a company as large as Amazon can get away with not paying employees for injury time. The company talks about benefits, but fails to meet the simple needs of frontline employees. It’s disgraceful. 

The Verdict on Amazon’s Shiny New Investment Fund

According to a February article from GeekWire, Amazon employed 1.1 million people in the U.S. across all its operating units, including e-commerce and logistics. I recently suggested AMZN stock was a long-term buy because of its job creation. 

This company leaves me the most conflicted of all the stocks I’ve covered over the years despite its job creation. If it could only learn how to harness its innovation for the good of its frontline employees, AMZN stock wouldn’t be trading around $3,000; it would be trading 10x this amount. 

Think about it. 

Let’s assume of the 1.1 million employees in the U.S., 60% work in warehouses across the country. Based on the $1 billion from AIIF, that’s $1.515 per employee. Let’s further assume that of the 660,000 workers, 5% are injured in some capacity during a given year. If you allocated the $1 billion to the injured employees, that would amount to $30,303 for each of the 33,000 injured, more than plenty for injury pay. 

I’m not suggesting the company should stop investing in innovation. Still, until it takes the problem with its frontline workers more seriously, initiatives like the Amazon Industrial Innovation Fund will face extreme skepticism from environmental, social, and governance investors.

From where I sit, the $1 billion Warehouse Employee Health and Safety Fund has a much better ring to it. Amazon’s latest announcement for those who work in the warehouse is underwhelming. For shareholders, it is business as usual.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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