I have owned Amazon.Com (NASDAQ:AMZN) stock for a decade, and I have never been more worried about it.
It’s not just that shares are down 40% over the last year. It’s not just that growth slowed to 9% last year or that it lost money. It’s certainly not the layoffs.
It’s that the company appears stale and at war with itself. Amazon speaks with one voice, that of CEO Andy Jassy, and he’s silent.
The people in the cloud division are at war with the store. The store is beset with problems from third-party sellers, some of them crooks. Alexa and Amazon’s brick-and-mortar strategy are failures.
The Alibaba Solution
One solution is that of Alibaba Group Holding (NASDAQ:BABA). Break the thing up.
I have suggested this several times, believing it will unlock value.
But the Alibaba decision shows the strategy’s weakness. Alibaba wants to break into 6 pieces. But the online store represents 70% of revenue.
The cloud is just 8% and grew just 3% last year. The growth is coming from its logistics business. But a “sum of the parts” valuation still shows it worth $204 per share, nearly twice its current market cap.
Analysts here have soured on an Amazon breakup, viewing the Alibaba one as forced by an autocratic government.
Amazon in Pieces
Standard in 1911 seemed massive, but it was just at the start of the gasoline boom. Today Amazon is just at the start of the Cloud boom.
Amazon’s AWS had $80 billion in revenue last year and reported over one quarter of that, $22.8 billion, as operating income.
Amazon will have nearly $60 billion in capital spending this year, $24 billion of it going specifically to AWS. Amazon had operating cash flow of $46.7 billion last year.
You canvalue AWS at 10 times revenue. You can value the store at half its $243 billion in product sales. Services like Prime, the Kindle, Fire TV and Alexa could get a second life with AI software.
The pieces of Amazon are worth at least $1.5 trillion, 50% more than the market gives the whole.
Amazon would be worth even more if it were treated as broken but stayed together.
If there were a merchandiser running the store, a TV executive running streaming, a logistics expert running the warehouses, and if Jassy focused on AWS, the company might gain the focus it needs to address its problems.
Amazon can sell both online and offline, as Walmart (NYSE:WMT) has proven. Amazon is going to win the streaming wars, thanks to its enormous library. The other players just haven’t realized it yet.
AI is going to dramatically expand demand for cloud, and that revolution has just begun.
The future of Amazon looks as bright as the sun to me.
The Bottom Line
My primary concern about Amazon remains Jassy. I believe the job is too big for him.
That doesn’t mean Amazon is too big to succeed. It means there’s a reason for the market’s discount to its real value.
It also means there’s potential for a lot more winning, whether Amazon is broken up or not.
On the date of publication, Dana Blankenhorn held long positions in AMZN and BABA. 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. His 10th novel is The Time Tunnel, now available 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.