Amazon share price: Bezos plans to step down as CEO, where next?

Blockbuster results from big tech aside, news that Amazon’s founder and CEO – Jeff Bezos – would be stepping down from his role as Chief Executive Officer looks to have been one of the largest curveballs of US earnings season thus far.

Bezos, who founded Amazon in 1994, took the quaint concept of an online bookstore and transformed it into the e-commerce behemoth we know today.

Despite the hyper-growth that the company has witnessed over the last twenty five plus years – Amazon’s success was anything but guaranteed when Bezos started the business in his garage back in the mid-90s.

In 1995 Amazon reported net sales of $511,000 against a net loss of $303,000. By 1997 the company’s sales had risen exponentially – coming in at $147,758,000, while losses had also snowballed, hitting $27,590,000.

The Amazon we know today has continued to build on that growth, while scaling back its losses and generating significant free cash flow in the process.

This is well reflected in Amazon’s most recent quarterly results that were released to the market this week. Here the company reported quarterly net sales of $125.6 billion, up 44%; net income of $7.2 billion, and operating cash flow of $66.1 billion, up 72%.

Returning to the Bezos question, as part of those results it was also announced that he would be stepping down as CEO and transitioning to the role of Executive Chair during the back half of 2021.

‘Amazon is what it is because of invention. We do crazy things together and then make them normal,’ Bezos said.

In giving colour to his decision to step down from the top spot, he said:

‘If you do it right, a few years after a surprising invention, the new thing has become normal. People yawn. That yawn is the greatest compliment an inventor can receive. When you look at our financial results, what you’re actually seeing are the long-run cumulative results of invention. Right now I see Amazon at its most inventive ever, making it an optimal time for this transition.’

Looking at who will replace Bezos, the company announced that Andrew Jassy would take the top spot during the third quarter of FY21.

Who is Andrew Jassy?

Jassy’s ascent is neither coincidental nor all that surprising. Starting at Amazon as a Marketing Manager in 1997, in 2003 he would propose an idea that would reshape Amazon: Start a cutting-edge Cloud Computing division. That idea eventually became Amazon Web Services (AWS) – the cloud services arm of the company. Jassy led this business segment since its inception, though didn’t become Chief Executive Officer of AWS until 2016.

Despite many associating Amazon with e-commerce, it is AWS that is arguably the company’s most important business unit. The following table highlights that while AWS net sales are significantly lower than the company’s other business segments, its operating profits are significantly higher.

_{*Table displaying FY20 operational performance figures.}

Amazon share price: How investors reacted?

Despite Jassy’s clear suitability for the role of Amazon CEO – with Bezos such an instrumental force in the company’s success – questions and concerns were always going to materialise if and when he chose to step down as CEO.

And to be sure, AMZN did fall on Wednesday, finishing out the session down 2.00% at $3,312.53 per share. At that price the stock is up a little over 60% in the last year.

Sell-side analysts reacted more positively than the market did, with many key brokers all boosting their price targets on AMZN in the wake of the Q4. Illustrating this point, analysts from Truist, 140166, Goldman Sachs, Guggenheim, Oppenheimer, MKM Partners, Pivotal Research, Credit Suisse and Monness Crespi & Hardt all raised their price targets on Amazon following the Q4.

While analysts from Pivotal Research said that Bezos stepping down as CEO may act as an overhang for the stock, Bill Carr, who previously worked at Amazon, made the astute point that Bezos’ strength as a leader extended far beyond his individual genius, saying:

‘It’s not just a masterstroke of one person’s genius. In fact, part of the genius of Jeff is that he was focused on building a company that would endure for decades.’