Amazon is pursuing “too many ideas” and needs to focus on the best opportunities, analysts say in letter to Jassy


Bernstein's Marc Smurlick Says Amazon Has a Great Place to Leverage Capital

Aiming to upend everything from healthcare and grocery stores to internet satellites, Amazon Bernstein analysts say the company has lost too much focus and is missing out on opportunities in its core business. Bernstein analysts released what they called an “open letter” to CEO Andy Jassy and the board on Wednesday.

Amazon continues to dominate e-commerce and cloud computing with Amazon Web Services. But in some other areas it is spending heavily without seeing results, analysts say.

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“We fully support Amazon’s efforts to identify and seize the next AWS-scale opportunity,” said Marc Shumlich of Bernstein, who has an Outperform rating for the stock. “But what we’ve seen recently is that companies simply pursue too many ideas, and weak ideas move from ‘only Amazon can’ to truly disruptive efforts to oxygen, capital, and, most importantly, oxygen and capital.” It means that you are taking away your concentration.”

Amazon’s stock performance compared to ‘closest megacap peers’ — apple, microsoft and Google — is also giving investors hope, Shmlik said. Amazon’s stock is up 50% year-to-date, but has lagged its top competitors by about 52% over the past five years, he said.

As of early afternoon New York time, the stock was down 3.6% to $122.12.

Shumlik urged Amazon to return to its “day one” ethos, citing a phrase put forward by Amazon founder and executive chairman Jeff Bezos, who was replaced by Jassy in July 2021. . Bezos famously said that the spirit of “Day One” would help Amazon stave off the crisis. He said that no matter how big the company gets, it will continue to innovate rapidly like a startup.

“Day two is stagnant,” Bezos said. In a letter to shareholders in 2017. “Then follows irrelevance. Then follows excruciatingly painful decline. Then follows death. And that’s why it’s always the first day.”

Smurlick said Amazon should “sell, seek outside funding, or cut spending” in the healthcare sector and an early low-orbit satellite business called Project Kuiper. He noted Amazon’s multi-year effort to get into the healthcare space before abandoning initiatives like its Care telemedicine service, Halo health and fitness bands, and a healthcare joint venture called Haven.

Read CNBC's full interview with Amazon CEO Andy Jassy on his message to investors, new AI tools, and stock prices.

Kuiper “seems even more extreme as an investment space,” Smurlick said, but Amazon is putting $10 billion into building out the effort. Google’s lack of success with its Project Loon, Fiber, and Fi efforts shows that “no matter how ‘cool’ the technology is, capital-intensive, low-margin utilities aren’t worth the effort.” It shows, he wrote.

Amazon should take a page out of the Alphabet book and incorporate Kuiper, Healthcare, and perhaps Alexa into its “other bets,” Shumlik said. Doing so will demonstrate a “healthier, more profitable core business” and won’t undermine the company’s efforts to “build his next AWS,” he said.

Shumlik is also skeptical of Amazon’s continued efforts to expand in international markets such as Brazil, Singapore and India, where competition remains stiff. He calls it a case of “throwing good money after bad money,” despite the strategic value of such markets.

When it comes to Whole Foods, Fresh Supermarkets and Go’s cashierless convenience stores, Shumlich wrote that Amazon needs to make a “physical grocery call.” Amazon acquired Whole Foods for $13.7 billion in 2017 and has continued to expand its grocery selection on its website while launching other experimental stores. Recently, the company paused further expansion of Fresh and Go stores as Jassy looks to cut costs.

Instead of “tinkering” with Fresh and Go stores, Shumlik said Amazon should “buy proven concepts such as KR/ACI stores that could be sold,” Kroger and Albertsons. mentioned the store. selling off As part of a planned merger.

Smurlick said Amazon needs to focus on its core strengths and continue to expand into other areas where it’s gaining traction, adding continued enhancements to its advertising and media divisions, as well as its non-Amazon web growth. Make sure your site takes advantage of Prime delivery benefits.

Current handout tactics are confusing to shareholders and need to be eliminated to stem continued underperformance, Smurlick added, pointing to uncertainty about where Amazon sits in the artificial intelligence race. .

“Right now, investors are asking questions like ‘Is AWS the worst in AI?’, ‘Is retail actually a profitable business?’ have been coming in,” Shmullik writes. “This points to one of the fundamental problems he has: Amazon doesn’t have a story of its own.”

Amazon did not respond to a request for comment.

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