Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Commentary

Jeff Bezos Goes out On Top

Jeff Bezos is a business genius with a great sense of timing. The financial numbers show the Amazon (AMZN) chief executive officer picked the perfect time to ride off into the sunset.

For instance, Amazon (NASDAQ: AMZN) reported quarterly revenues of $125.555 billion, a quarterly gross profit of $46.271 billion, and a quarterly income of $6.873 billion on 31 December 2020. Furthermore, Amazon had $84.396 billion in cash and short-term investments and total assets of $321.195 billion on the same day.

Bezos is leaving as Amazon generates incredible amounts of cash. For instance, Amazon (AMZN) reported a quarterly operating cash flow of $30.431 billion on December 31, 2020. Additionally, Amazon reported a quarterly ending cash flow of $12.175 billion on the same day.

Amazon’s Incredible Growth

Moreover, Amazon (NASDAQ: AMZN) is experiencing incredible growth. Notably, Stockrow gave Amazon a revenue growth rate of 43.59% in the quarter ending on 31 December 2020.

Impressively, Amazon’s quarterly revenues grew from $87.437 billion on 31 December 2019 and $96.145 billion on 30 September 2020. Similarly, the quarterly gross profit grew from $33.46 billion on 31 December 2019 and $39.039 billion on 30 September 2020.

In addition, the quarterly operating income rose from $3.88 billion on 31 December 2019 and $6.194 billion on 30 September 2020. Plus the quarterly operating cash flow grew from $19.659 billion on 31 December 2019 and $11.964 billion on 30 September 2020.

I think Amazon’s astonishing growth justified the $3,305.05 Mr. Market paid for it on 9 February 2021. In addition, the $1.664 trillion Amazon market cap from 9 February 2021 could have some justification.

Bezos’s achievements here are extraordinary, and it is easy to see why he is leaving. I do not think there is anything more Jeff can achieve at Amazon. There is no way Bezos will ever be able to top these financial numbers.

Amazon has become one of the world’s greatest money machines. I think Bezos is leaving at the right time. His Everything Store is prospering, and the only real threat I see to it is theoretical: antitrust lawsuits.

 Main Street is right about Amazon

I think Amazon’s recent performance justifies ordinary investors’ faith in AMZN.

Interestingly, hedge founds own few Amazon shares while the general public owned around 26% of Amazon’s stock and individual investors owned around 14.9% in October 2020, Simply Wall Street notes. Thus, individuals and the general public owned 40.9% of Amazon’s stock in October 2020.

Thus, enormous numbers of ordinary people hold Amazon shares while hedge funds ignore them. My suspicion is that ordinary people own Amazon because they see how widely used its services are. Hedge fund managers, on the other hand, could ignore Amazon because it has little impact on their lives.

The other large group of Amazon investors is insiders, led by Bezos. Bezos was Amazon’s largest shareholder with around 11% of the shares in October 2020.

Why Investors Love Amazon 

Therefore, people who are familiar with Amazon; insiders and customers, buy AMZN shares. I think that’s a sign of an excellent company, people believe in.

Another reason people buy Amazon is the growing impact it has on lives and communities. Many investors buy Amazon because they see its packages on every porch and its vans in their neighborhoods. Others notice the empty shops on Main Street and the abandoned malls and look for a cause.

Similarly, the COVID-10 pandemic which traps many of us at home forces people to shop at Amazon. Those people discover how convenient and cheap Amazon is and start wondering about its stock.

Hence, I consider Amazon’s share price a behavioral investing indicator. People are risking their money in something they like and believe in. As with Tesla (TSLA), time is proving ordinary investors’ suspicions about a company right and many analysts wrong?

Meet Amazon’s New CEO

Bezos is leaving in the right way, exiting when the company is strong and appointing a logical replacement.

The probable replacement is Andy Jassy, the brains behind Amazon Web Services (AWS). Jassy is an Amazon lifer who spent several years as Bezos’ chief assistant before taking over AWS.

Synergy Research estimates that AWS controlled 33% of the cloud services infrastructure market in the 2nd Quarter of 20202. Thus, AWS controls more of the cloud infrastructure market than any nation, even the People’s Republic of China. Synergy estimates that Chinese companies control around 12% of the global cloud services market.

The only company that can complete with AWS in the cloud is Microsoft (MSFT). Microsoft (NASDAQ: MSFT) controlled around 18% of the cloud services market in the second quarter of 2020.

Jassy is the architect of AWS’s success, and the creator of the engine that pays for Amazon’s growth. The Verge estimates AWS generated 63% of Amazon’s profits and $50 billion in revenue in 2020.

I think Jassy could make Amazon more of a money machine by maximizing profits. However, Jassy could be more controversial than Bezos, he’s known for far-left-wing politics and skepticism of law enforcement. Strangely, Jassy is an outspoken supporter of the Black Lives Matter movement.

Only time will tell where Jassy will take Amazon. However, I have feeling investors will love that place.

Where Mr. Bezos will go next? Probably to space

The media speculation is that Bezos plans to devote more attention to his private space company, Blue Origin.

Bezos, a lifelong Trekkie, has long stated that his goal is to take humanity into space. Blue Origin’s website arrogantly claims the company’s goal is to have millions of people living and working in space.

However, Blue Origin has fallen behind Elon Musk’s SpaceX in the private space race. Blue Origin has lost billions of dollars worth of government launch contracts to SpaceX and the United Launch Alliance (ULA). The ULA is a consortium of Boeing (BA) and Lockheed Martin (LMT).

Currently, Blue Origin is part of the National Team with Lockheed Martin, Northrop Grumman (NOC), and Draper. The National Team is competing for a contract to build the Human Landing System (HLS), NASA’s next-generation lunar lander.

I think Bezos wants to use the HLS and his reusable New Shepherd and New Glenn rockets to build a lunar base. Blue Origin will use the moon as a base for constructing space stations and orbiting colonies and factories. One of Bezos’ goals is to move all heavy industry into space.

Bezos’s Life Work in Space

Bezos considers space and Blue Origin his life’s work and his legacy. Reuters estimates Bezos has been liquidating $1 billion worth of Amazon (AMZN) stock annually for years to fund Blue Origin.

My prediction is that Bezos will spend the next decade or longer expanding Blue Origin and creating space-based industry. For example, Blue Origin could construct the first factory on the moon to build satellites and components for space stations.

More immediate plans at Blue Origin will include winning NASA contracts and developing space tourism and a working space capsule. Amazon (AMZN) is also planning Project Kuiper, a cloud of low-Earth Orbit satellites that will provide high-speed broadband connectivity and compete with Musk’s Starlink satellite internet scheme.

Consequently, investors will wonder if Bezos could make Blue Origin and Kuiper Systems, the owner of Project Kuiper, as lucrative as Amazon (AMZN). Sadly, we will have to wait and see because both Blue Origin and Kuiper Systems are tightly held.

However, if anybody could make money in space, it is Jeff Bezos. Only future history will tell us if Amazon just one piece of the legend of Jeff Bezos.

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