Will a changing of the guard boost Amazon's share price?

The Amazon share price [AMZN] gained 12.9% so far this year to 13 July, closing at $3,677.36. After gaining 3.8% from the start of the year to close 2 February at $3,380, the Amazon share price then collapsed to $2,951.95 on 8 March. The Amazon share price struggled throughout March before recovering to $3,400 by 13 April.

After reaching $3,471.31 on 29 April the Amazon share price then collapsed again to $3,151.94 on 12 May.

It staged a strong recovery to its all-time high close of $3,731.41 on 8 July and on 13 July it peaked even higher to hit $3,761.42. As of 13 July, the Amazon share price sat 18.5% above its level a year previously.

  

Bezos takes off

Exactly 27 years after founding the company, Jeff Bezos (pictured) finally stepped down from the helm of Amazon on 5 July. During his time at the company, Bezos instilled a corporate culture that — despite attracting criticism for its impact on warehouse staff — has been met enthusiastically by many senior managers for its embrace of constructive disagreement and an obsessive prioritisation of customer needs. At the time he stepped down, Amazon was the world’s fourth-largest company by market cap.

He handed over to Andy Jassy, who takes over the post of CEO from his previous position at the head of Amazon Web Services (AWS). Jassy led the cloud computing arm, with Bezos’s backing, since its formation in 2003.

Jassy is said to be a disciple of Bezos’s business philosophy, having joined the company as an MBA graduate in the late 1990s, long before cloud computing was on the agenda. Jassy worked his way to becoming Bezos’s shadow adviser and was at his side when the Amazon founder began exploring the possibility of offering cloud hosting services to third parties in 2003.

Jassy’s succession 18 years on is no coincidence. AWS generated profits of $13.5bn in 2020 at an operating profit margin of 30%, compared with 4% for North American sales. It is one of Amazon’s fastest-growing revenue streams, and on top of a raft of major new agreements with corporate clients such as JPMorgan Chase [JPM] and Thomson Reuters [TRI], will soon have a second chance at landing a major government contract.

  

In the week since Bezos stepped down, the Amazon share price was boosted 5.9% thanks to a US Department of Defense announcement that it was cancelling a Joint Enterprise Defense Infrastructure (JEDI) Cloud contract, worth $10bn, that had been previously awarded to Microsoft [MSFT].

Amazon had taken legal action following Microsoft’s award of the contract, asserting that former US president Donald Trump, who has a history of verbal sparring with Bezos, pushed for Amazon to be overlooked. The surge in the Amazon share price increased its market cap enough to overtake Saudi Aramco to become the world’s third-largest company by market cap, one position higher than Bezos left it.

Bezos will continue as executive chairman of Amazon, a move he has previously said will allow him more time to focus on other ventures. He has taken aim at fellow billionaire Richard Branson via his Blue Origin space project, saying the Virgin Galactic founder’s test flight on 11 July didn’t get Branson as far as what most people consider “space”. Bezos hopes to cross the Kármán line — where the Earth’s atmosphere meets outer space — in Blue Origin’s New Shepard craft later this month.

 

Cloud or commerce?

AWS dominates the cloud computing market. Jassy recently hit back at criticism over AWS having slower growth rates than its rivals by highlighting its much higher baseline revenue run rate of $46bn compared with competitors, such as Google Cloud’s run rate of $13.6bn. Amazon controls nearly half the global infrastructure as a service (IaaS) market.

Despite this, Amazon is the 27^th largest holding in the Global X Cloud Computing ETF [CLOU], with a weighting of 1.94% as of 13 July. It is positioned much higher in the Global X E-Commerce ETF [EBIZ] — it is the fifth-largest holding with a weighting of 4.59% as of 13 July. This could reflect the fact that, for now at least, Amazon is still first and foremost an e-commerce company.

In 2021 so far, e-commerce appears to be the growth industry. The Global X E-Commerce ETF posted gains of 6.1% in the year to 13 July, beating the Global X Cloud Computing ETF’s growth of 2.7% over the same period. Both funds significantly underperformed the Amazon share price during the period.

In the longer term, the momentum still appears to be with e-commerce. In the trailing 12 months, The Global X E-Commerce grew 32.7%, while Global X Cloud Computing ETF gained 25.6%. Over this time period, however, both funds have outperformed the Amazon share price.