Technology giant Amazon (NASDAQ:AMZN) reported strong fourth-quarter numbers on Tuesday which saw the company beat both top- and bottom-line estimates. And the company topped $100 billion in quarterly revenue for the first time ever. Yet, those strong numbers were overshadowed by news that founder and CEO Jeff Bezos would be stepping down and transitioning to the Executive Chairman role. AMZN stock traded down about a percent on the news.
Ostensibly, this reaction makes sense. After all, it’s Jeff Bezos. He founded Amazon.com back in the 1990s as an online bookstore, and he has since been the man in charge of turning this company into one of the most powerful technology giants in the world today.
It will be impossible to replace Bezos.
But, upon closer inspection, it becomes clear that the guy tapped to fill Bezos’ shoes — Amazon Web Services’ head Andy Jassy — is not just an excellent pick, but also someone who could actually accelerate Amazon’s growth narrative and provide a boost for AMZN stock.
Here’s a deeper look.
AMZN Stock: Who Is Andy Jassy?
Amazon didn’t replace its iconic founder with a slouch. Instead, the company tapped someone with as impressive a resume as anyone in the business.
Andy Jassy graduated from Harvard University in 1990 and Harvard Business School in 1997. Upon completing business school, he immediately went to work for Bezos at Amazon.
Nine years later, he helped created Amazon’s cloud computing division, Amazon Web Services. He has headed the AWS division ever since then, elevating to the title “AWS CEO” in 2016. Under his guidance, Amazon Web Services has gone from niche cloud infrastructure business in 2006, to omnipotent cloud computing platform with global and unrivaled reach today.
All in all, Jassy checks off all the boxes.
Great education. A long history with the company. A track record of scaling one of the world’s largest businesses.
AMZN stock holders should be very happy with this pick to succeed Bezos.
A Heavier Focus on AWS
Going one step further, Jassy becoming CEO could actually be a positive for Amazon’s stock.
Why? Because Bezos is an Amazon.com guy, and Jassy is an AWS guy. That’s an important distinction, because the future of Amazon rests squarely on the shoulders of AWS, not Amazon.com.
Long story short, while Bezos has been the man in charge forever, he was known as somebody who was genius at getting Amazon.com to fire on all cylinders through a relentless focus on the customer. He has never really been credited as being the brains behind AWS.
Who has? Jassy. AWS is his baby and his life’s work. When it comes to AWS, there is no one more knowledgeable or capable than Andy Jassy.
Thus, under Jassy’s guidance, Amazon will likely adopt a bigger focus on the cloud side of the business, and a smaller focus on the retail side of the business.
This shift in focus could produce sizable long-term tailwinds for AMZN stock.
Cloud Is the Future
Amazon.com is a great business. It will continue to grow at a very healthy pace over the next several years as retail shopping continues to migrate online.
But, by all metrics, AWS is a better business.
Amazon Web Services has been growing faster than Amazon.com for several years now, averaging 25%-plus sales growth over the past several quarters versus 10%-plus growth for Amazon.com (excluding Covid-19 impacts). It’s a far more profitable business that runs at 30% operating margins, versus sub-5% operating margins for Amazon.com.
And, most importantly, AWS has far more upside potential than Amazon.com.
The e-commerce market is expected to grow by roughly 7% per year over the next five years. In that market, Amazon has tons of formidable competition with Walmart (NYSE:WMT), Target (NYSE:TGT), eBay (NASDAQ:EBAY), Wayfair (NYSE:W), Chewy (NYSE:CHWY), Shopify (NYSE:SHOP), so on and so forth. As such, the revenue and margin outlook for Amazon.com — while good — is far from great. This is likely a ~10% growth business with maxed out margins.
The cloud computing market, meanwhile, is expected to grow by nearly 20% per year over the next five years. In that market, Amazon has only two real competitors, Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOG). As such, the revenue and margin outlook for AWS is very robust. This is likely a 20%-plus growth business with room for margin expansion.
Amazon shifting focus from Amazon.com to AWS is a smart move which should ultimately result in faster revenue growth, bigger margins and bigger profits.
Under Jassy, we will likely get that shift in focus. And as such, this CEO transition may actually be bullish news for AMZN stock.
Bottom Line on AMZN Stock
It’s weird to say that Jeff Bezos stepping down is good news for AMZN stock.
But I think that’s actually the case.
It’s not a knock against Bezos. He is a disruptor. A genius. An innovator. And he is the reason why Amazon is a trillion-dollar company today.
But it’s time for Amazon to unlock its full potential in the cloud — and there’s no better way to do that than by giving the AWS chief the kings to the kingdom.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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