Amazon is pursuing ‘too many ideas’ and needs to focus on best opportunities, analyst says in letter to Jassy
In its quest to upend everything from health care and grocery stores to internet satellites, Amazon has become too unfocused and is missing out on opportunities in its core businesses, according to Bernstein analysts, who on Wednesday published what they called an “open letter” to CEO Andy Jassy and the board.
Amazon remains dominant in e-commerce and cloud computing with Amazon Web Services. In some other areas, however, the company has spent heavily without seeing the results, the analysts said.
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“We fully support Amazon’s efforts to uncover and capture the next AWS-sized opportunity,” wrote Bernstein’s Mark Shmulik, who has an outperform rating on the stock. “But what we’ve seen recently is a company simply pursuing too many ideas, with weaker ideas taking away the oxygen, capital, and most importantly focus from the truly disruptive initiatives that ‘only Amazon can do.'”
Amazon’s stock performance compared with its “closest mega-cap peers” — Apple, Microsoft and Google — has also left investors wanting, Shmulik said. Amazon shares are up 50% year to date, but they’ve underperformed top peers by about 52% over a five-year period, he said.
The stock was down 3.6% to $122.12 as of early afternoon New York time.
Shmulik urged Amazon to get back to its “Day One” mentality, referring to a phrase championed by Amazon founder and Executive Chairman Jeff Bezos, who was succeeded by Jassy in July 2021. Bezos famously said a Day One mentality would help Amazon stave off its demise, and described it as continuing to innovate rapidly like a startup, no matter how large the company becomes.
“Day 2 is stasis,” Bezos said in a 2017 shareholder letter. “Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”
Amazon should “divest, seek outside funding, or trim spend” in health care and its nascent low Earth orbit satellite venture, called Project Kuiper, Shmulik wrote. He pointed to Amazon’s multiyear effort to break into health care, before abandoning efforts like its Care telehealth service, Halo health and fitness band, and a joint health-care venture called Haven.
Kuiper “appears even more extreme as an investment area,” according to Shmulik, with Amazon committing $10 billion to build out the initiative. Google’s lack of success with its Project Loon, Fiber and Fi efforts signals “capital intensive low-margin utilities aren’t worth the effort regardless of how ‘cool’ the technology may be,” he wrote.
Amazon should even take a page out of Alphabet’s book and strip out Kuiper, health care and possibly Alexa into “other bets,” Shmulik said. Doing so, he says, would show a “far healthier and more profitable core business” and wouldn’t detract from the company’s effort to “build the next AWS.”
Shmulik is also skeptical of Amazon’s ongoing efforts to expand in international markets like Brazil, Singapore and India, where competition remains stiff. He calls it a case of throwing “good money after bad,” despite the strategic value that those markets may hold.
When it comes to Whole Foods, Fresh supermarkets and Go cashierless convenience stories, Amazon needs to “make a call on physical grocery,” Shmulik wrote. Amazon bought Whole Foods for $13.7 billion in 2017, and has continued to build out its grocery offerings on its website, while launching other experimental shops. Recently, the company paused further expansion of its Fresh and Go stores as Jassy looks to cut costs.
Instead of continuing to “tinker with” its Fresh and Go stores, Shmulik said Amazon should “purchase a proven concept such as potential divested KR/ACI stores,” referring to the stores Kroger and Albertsons’ are selling off as part of their planned merger.
Amazon should focus on its core strengths and keep pushing into other areas where it’s gained traction, Shmulik said, encouraging a continued build-out of its advertising and media arms, as well as its Buy With Prime service, which allows websites off of Amazon to take advantage of its Prime delivery benefits.
The current scattershot approach is confusing to shareholders and needs to be cleared up to stem continued underperformance, Shmulik added, calling out uncertainty around where Amazon falls in the artificial intelligence race.
“We get investor questions today asking ‘is AWS in last place in AI?’, ‘is retail actually a profitable business?’, and even ‘do we want Andy on the earnings call?'” Shmulik wrote. “It points to one underlying issue: Amazon doesn’t own its own narrative.”
Amazon didn’t immediately respond to a request for comment.
WATCH: Amazon workers plan to walk out over ‘lack of trust’ in leadership
Technology
Melinda French Gates to resign from Gates Foundation, will pursue own philanthropy with $12.5 billion grant
Melinda Gates, co-founder of the Bill and Melinda Gates foundation arrives at the Elysee Palace in Paris, France on July 01, 2021.
Mustafa Yalcin | Anadolu Agency | Getty Images
Melinda French Gates, the former wife of Microsoft co-founder Bill Gates, announced on Monday she would resign as co-chair of the Bill & Melinda Gates Foundation next month.
French Gates said in a statement on X that it was a “critical moment” to protect and advance women’s rights around the world. The announcement comes almost exactly three years after the Gates’ announced their divorce.
She said she will have “an additional $12.5 billion to commit to my work on behalf of women and families” as a result of her resignation and the Gates’ divorce agreement. The couple divorced in May 2021.
Bill Gates in a separate statement said, “I am sorry to see Melinda leave, but I am sure she will have a huge impact in her future philanthropic work.”
The Gates Foundation’s work has focused on worldwide anti-poverty and global health initiatives, including anti-malaria efforts in Africa, and extensive investment across the Indian subcontinent and South Asia.
French Gates has also devoted significant amounts of time and money toward gender-equality initiatives worldwide. In 2015, she founded Pivotal Ventures, a separate entity from the Gates Foundation, which is focused on removing barriers to access and opportunity for minorities and women in the U.S.
Fractured finances following divorce
Microsoft co-founder Bill Gates and his wife Melinda during an interview in New York on February 22, 2016.
Shannon Stapleton | Reuters
Gates and French Gates separated in 2021, more than two years after CNBC first reported on the Microsoft co-founder’s relationship with disgraced financier and convicted sex offender Jeffrey Epstein.
French Gates began meeting with divorce lawyers in 2019, after news of Gates’ relationship with Epstein first emerged, The Wall Street Journal previously reported.
The Gates Foundation has been one of the most powerful private philanthropic forces in the world in recent decades. Gates directed the lion’s share of his fortune to the foundation along with his family office Cascade.
French Gates joins MacKenzie Scott, the ex-wife of Amazon co-founder Jeff Bezos, in fully separating her philanthropic ventures from her former husband’s.
Here is French Gates’ full statement:
After careful thought and reflection, I have decided to resign from my role as co-chair of the Bill & Melinda Gates Foundation. My last day of work at the foundation will be June 7th.
This is not a decision I came to lightly. I am immensely proud of the foundation that Bill and I built together and of the extraordinary work it is doing to address inequities around the world. I care deeply about the foundation team, our partners around the world, and everyone who is touched by its work.
I am taking this step with full confidence that the foundation is in strong shape, with its extremely capable CEO Mark Suzman, the Executive Leadership Team, and an experienced board of trustees in place to ensure all its important work continues. The time is right for me to move forward into the next chapter of my philanthropy.
This is a critical moment for women and girls in the U.S. and around the world — and those fighting to protect and advance equality are in urgent need of support. Under the terms of my agreement with Bill, in leaving the foundation, I will have an additional $12.5 billion to commit to my work on behalf of women and families. I’ll be sharing more about what that will look like in the near future.
This is breaking news. Please check back for updates.
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