Now here's an idea: Break up Amazon to get more shareholder cash Investor advice biz Citi Research has recommended that Amazon breaks itself in half to avoid antitrust accusations, according to reports. "There has been greater noise of late regarding the desire to investigate and potentially regulate the company," Citi analyst Mark May said in a note to clients issued on Monday and reported …
The current structure has served Amazon well by allowing Bezos to drive innovation and expansion by *reinvesting* in the business, investors be damned. Those who got in the Amazon game (like I would've *loved* to back in the nineties) early now have stock that is worth 100 times more. That is long game, that is faith in what he's doing it worth it.
"people keep betting that Amazon will just keep getting bigger"
Which is probable as they are only generating profits of $197m on revenues of $38bn. The rest is being invested back into the business. By keeping it all one company they can take money from one part to grow or even start another. This would be so much harder to do if they were seperate companies, and the result would be investment money pouring out of Amazon and into the shareholders pockets.
@James 51 - The whole idea is predicated on avoiding anti-trust litigation supposedly. While Amazon is big it is only dominant in online retailing (about 50%) and significant in a couple of others. As a retailer it might command single digit share of the total retail market; dominant in a niche but not a real threat to a well managed retailer. Most of wailing about failing retailers is about incompetently managed companies and over built retail space. Neither issue is the fault of Amazon at all. At worst Amazon highlights the incompetence. AWS is a tough competitor but there are many others with the cash and (alleged) technical know-how to be fierce competitors. Here its more about getting your act together than AWS being a monopoly. Since Amazon is not a monopoly the 'analysis' is really demand to break up the company as you say "so I can make lots of money".
Controversially, May is reported as saying that Amazon ought to break itself in half, separating AWS from the online shopping business.
People, me among them, have been suggesting the split for years. There may be some financial advantages in keeping the warehousing and distribution parts with the digital side but it's difficult to see business advantages.
>There may be some financial advantages in keeping the warehousing and distribution parts with the digital side but it's difficult to see business advantages.
Having spent my early years working in conglomerates, there are significant business advantages, just that they are not trendy, because they are more about business costs and the long-term competitive pricing of products than the short-term enrichment of investors.
Given the size of Amazon's holding company, it perhaps better to consider it to be more of an investment house, where it only invests in and manages its own portfolio of companies. Taking this tack, it is obvious that many investment houses and their managed investment portfolios should also be broken up as they would deliver greater monies to the investors, but then we invest in managed funds to smooth the ups and downs... The last directors of GEC (UK) plc discovered this the hard way, laying waste to a blue chip company in few short years, as they blindly followed fashion...
@Roland6
Right, but Amazon is not really a conglomerate in the classical sense, or even the way Berkshire Hathaway is. The retail side relies heavily on tax rules and arbitrage to remain competitive and the whole construct is based on Bezos saying "trust me…" a lot. The share structure doesn't provide enough oversight in my view.
I'm with Mr Clark on this. Amazon as a company grew on the back of its meteoric trading growth in retail. But it makes little or no money in retail, and if it paid AWS market rates it might be a significant loss maker. Bezos will know the truth, and i think he's keen to avoid any ugly truth being exposed. Amazon's share price is not supported by is current profits and prospective growth probably doesn't exist in retail or AWS to support it either. But as a bundle it is much more difficult to prove. As the most significant shareholder Bezos is the loser if the music stops.
Perhaps it would be more sensible to have a four way split - AWS, warehousing and distribution services and the retail market itself and Amazon IP. That way Retail could pay W&D both rent and service charges, AWS for cloud services and Amazon IP for using its IP, W&D could pay AWS for cloud and also Amazon IP, and AWS would roll it in on the basis of the organisation paying itself but they still that massive Amazon IP charge paid to wherever in the world it's convenient to hold the IP.
The W&D, AWS and Amazon IP charges are so high that the retail side would make next to no taxable profit in its geographical location, the W&D would make little taxable profit after overheads and those pesky AWS charges and Amazon IP considerations. AWS, well which geographical location was used for the processing of a transaction? Play it correctly and whichever host you use is geographically 'offshore' so pays a conveniently small local tax bill ... And the Amazon IP you lock up in little batches all over the tax-haven world. Everyone wins as long as they've got a 'B' and a 'Z' in their name.
Amazon should be able to do this easily, since they famously already consider every branch of the company as a different independent business decoupled from the rest.
I'm not sure that it would help Amazon on the competition side, though, considering the online store business is generating by itself all the regulatory interest. Maybe the advantage is that it would isolate AWS from the regulations affecting the online store?
As a customer on the retail side it's becoming clear that they're losing the plot in terms of getting the goods to the customer. I wonder if the whole business has got too big and diverse to manage properly. Splitting it up might help.
What wouldn't help would be someone taking advantage of the fact that it's largely debt free, borrowing heavily to buy the bits, loading it up with debt from that and then gradually running it into the ground before calling in the administrators. Not that that sort of thing ever happens, of course.
It IS his company, market analysts just read the tea leaves.
Everyone else with the minority % shares can just continue to gamble that he doesn't flush the company down the pan or sell up. It's not been a risky gamble so far either, at what point in the past 10 years would buying Amazon shares to hold long term have been a bad call.
It IS his company
Which sort of highlights some of the problems with Silicon Valley companies going public: the boards are supposed to run the company.
Of course, everyone's happy as long as the share price keeps going up but that is no excuse for poor governance.
At what cost does AWS provide services to the retail business? And if it is at cost, how does the moron suggesting this think forcing AWS to supply those services at Market Value (to avoid competition issues) will add value to either business?
These suggestions tend to come from looking at the *perceived* value of a split then coming up with *synergies* (or other BS) to justify it.
Remember you cant have Analyst without needing an arsehole.
"These suggestions tend to come from looking at the *perceived* value of a split then coming up with *synergies* (or other BS) to justify it."
I was expecting this exact phrase to appear in the article from the "analyst's" mouth. There are synergies to be made breaking them up, they sell and make money. One part starts to fail, they buy into it at a low value and then talk about the synergies of them merging again. Now that the crap stock is worth something again, sell that stock and laugh all the way past the trail of broken employees, customers, etc.
Wendy's and Tim Horton's had investors who did the revers and hurt both companies, but made a ton of cash. Each company took a long time to true up after the "anal"yzing was complete.
>At what cost does AWS provide services to the retail business?
I suspect, given the current organisational setup and oversight by tax authorities, the Retail Ltd does pay the AWS Ltd a market rate for services supplied. However, as both have the same parent shareholder there is a conduit for monies to legitimately move in the other direction.
I suspect that part of the incentive for 'investors' to call for a breakup is where Amazon as a business is now. It has grown big in a market known for slim margins and is now successfully entering new markets which traditionally have better margins. Thus I suspect that what is wanted is to break the internal money loop so that AWS profits for example, get publicly declared and investors getting their dip before monies get moved to subsidise less profitable parts of the business or get invested in new business opportunities...
the retail side has it's "own" AWS stack for the most part. The issue is that AWS is *massively* subsidizing the e-commerce side so that e-tail can run below cost to destroy all competition. This is a clear violation of anti-trust law and prosecutableTODAY on 100 year old foundations of law.
Bezos is doing a horrible job, having lost vast amounts of money. He should simply sell the trivially profitable part of the company (which itself has lost money most of its existence) and acknowledge that he is the most indebted man in world and doesn't know how to run a business that maximizes shareholder value.
I'm pretty sure I don't need /s
"May is reported as saying that Amazon ought to break itself in half, separating AWS from the online shopping business."
May as well tell Microsoft to split Azure out from the Office division, or Apple from mobile phones division and laptops.
The only reason he wants a split is to short on the shares that each individual firm would bring.
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