34 BARRON’S February 8, 2021
TECH TRADER
Many cloud stocks, which wouldn’t exist without
Amazon Web Services, trade at 20 times sales. At
the same multiple,AWS would be worth $1 trillion.
Amazon Sends a
Clear Message–Its
Future Is the Cloud
E
veryone knew the day
was coming, but in-
vestors still seemed
surprised by Jeff Be-
zos’ announcement
that he would be step-
ping down as CEO.
Amazon.comhas never had another
chief executive, after all, and Bezos
built the business from scratch into
one of the world’s largest companies,
with 1.3 million employees, annual
revenue nearing $500 billion, and
a market value of $1.7 trillion.
No one has ever launched a com-
pany and steered it to a valuation of
more than a $1 trillion while still at the
helm. By that measure, Bezos is more
successful than Steve Jobs, Bill Gates,
Warren Buffett, Sam Walton, Walt
Disney, Henry Ford, Andrew Carne-
gie, or John D. Rockefeller.
Amazon (ticker: AMZN) shares
have appreciated every year since 2014,
increasing more than tenfold over that
span. The company has spent years
pressing its advantage in e-commerce.
It has a growing fleet of delivery trucks
and jets servicing vast warehouses
staffed by humans and robots.
And, yet, the real value driver has
been the emergence of Amazon Web
Services, an idea nurtured by Bezos’
longtime lieutenant, Andy Jassy—yes,
the man just named to replace Bezos
as CEO later this year.
In July 2002, Amazon issued a
short press release unveiling Amazon-
.com Web Services. Bezos said that
Amazon was “putting out a welcome
mat for developers,” adding propheti-
cally, “this is an important beginning
and new direction for us.” The word
yet to be named will take over AWS.
If there’s any reason for caution
about Amazon, it would be a potential
leadership vacuum at AWS just as
competition in the cloud market is
heating up.
There are now real rivals for AWS,
although the precise math is fuzzy.
Alphabet(GOOGL) had $3.8 billion
in cloud revenue in the quarter, up
47%, and the company said its Google
Cloud Platform, which competes with
AWS, grew even faster. But that seg-
ment also includes Google Workspace,
which competes with Microsoft Office.
Microsoft(MSFT) had “connected
cloud” revenue of $16.7 billion in its
latest completed quarter, but that in-
cludes more than just Azure, Micro-
soft’s direct rival to AWS. Microsoft
also puts Office 365 and a cloud ver-
sion of its Microsoft Dynamics enter-
prise application business in its cloud
bucket.Oracle(ORCL) andIBM
(IBM) also claim substantial cloud
businesses. But Amazon remains the
dominant player, and not by a little.
T
here are several reasons
that Amazon is unlikely
to miss a beat through
the CEO transition.
First, as executive chairman,
Bezos said he intends to spend time
thinking about new products and
early initiatives, where he has always
thrived. “Keep inventing, and don’t
despair when at first the idea looks
crazy,” he wrote in a letter to Ama-
zon employees last week. “Remember
to wander. Let curiosity be your com-
pass. It remains Day 1.” Bezos is the
company’s largest investor, with a
stake worth about $200 billion.
Second, Jassy has been at Amazon
for 23 years. It’s the only place where
he’s worked since graduating from
Harvard Business School in 1997. He
has a strong reputation among Ama-
zon watchers, Wall Street loves him,
and Bezos trusts him. So, Jassy was
the obvious choice.
Finally, the transition is happening
at a moment of strength for Amazon. In
the fourth quarter, its sales were $125.6
billion, up 44% from the total a year
earlier, blowing past Wall Street esti-
mates. Profits of $14.09 a share in the
latest quarter were nearly double ana-
lyst forecasts, even though the company
spent more than $4 billion in the period
to protect workers against Covid-19.
Jassy was already running the most
important part of Amazon. This is no
longer an e-commerce company with a
cloud computing hobby; AWS is now
worth more than the retail segment.
And yet it’s hard to separate Ama-
zon from Bezos. The stock fell 2% on
the transition news, despite being
accompanied by the banner earnings
results. Any weakness could be a
buying opportunity. This past week,
Morgan Stanley analyst Brian Nowak
reiterated his Overweight rating on
the stock, upping his price target to
$4,200 from $3,900 and setting a
“bull case” target of $5,000, 50%
above Amazon’s recent close of $3,352.
His view is that Bezos will still be
around, Jassy knows what he’s doing,
the bench is deep, e-commerce is still
accelerating, and so is Amazon Web
Services.
The bottom line: Amazon is ready
for its post-Bezos close-up.B
By Eric J. Savitz
“cloud” wasn’t mentioned.
Today, AWS is synonymous with
cloud computing. In the fourth quarter,
it had revenue of $12.7 billion, boosting
the total for the year to $45.5 billion,
up 29%. AWS ended 2020 with a
backlog of $50 billion, 68% above the
total a year earlier. The business has
grown more than 475% since the end
of 2015, and next-year sales will easily
top $50 billion. Many cloud software
companies—most of which wouldn’t
exist without AWS—are trading for
20 times sales or higher. Apply that
measure to AWS and the business
is worth more than $1 trillion.
Jassy has served as CEO of Amazon
Web Services since its humble begin-
ning, and he became the logical suc-
cessor to Bezos after the recent retire-
ment of Jeff Wilke, the longtime leader
of the company's retail business.
Taken together, there has been a
lot of change for Amazon in a short
period. Wilke’s successor, Dave Clark,
has just settled into his new role. Jassy
is getting the top job. Bezos is moving
to executive chairman. And someone
Andy Jassy, who will become Amazon CEO
later this year, founded its cloud business
—Amazon.com Web Services—in 2002.
“This is an important beginning and
a new direction for us,” the company
said at the time. David Paul Morris/Bloomberg