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In its quest to change everything from health care and groceries to satellites of the internet, Amazon It has become too unfocused and is missing opportunities in its core business, 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. But analysts said the company spent heavily in some other areas without seeing results.
“We fully support Amazon’s efforts to uncover and seize the next opportunity of AWS magnitude,” writes Mark Schmulek of Bernstein, which is rated Outperformer. But what we’ve seen recently is a company simply pursuing too many ideas, with weaker ideas that take oxygen, capital and most importantly focus from truly disruptive initiatives that “only Amazon can do”.
Amazon stock performance compared to the “nearest companies by market capitalization” – appleAnd Microsoft And Google – Shmulik said: – I left the investors wanting too. He said Amazon shares are up 50% since the start of the year, but have underperformed their larger peers by about 52% over five years.
The stock fell 3.6% to $122.12 in early afternoon New York time.
Shmulik urged Amazon to return to a “day one” mentality, referring to a phrase championed by Amazon founder and CEO Jeff Bezos, who was succeeded by Jesse in July 2021. Bezos famously said that a day one mentality would help Amazon avoid its demise, describing it as continuing to Innovate as fast as a startup, no matter the size of the company.
Bezos said, “Day two is a recession.” In the 2017 contributor letter. “Followed by indifference. Followed by agonizing, agonizing decline. Followed by death. That’s why it’s always the first day.”
Shmulek wrote that Amazon should “divest, seek outside financing, or cut back on spending” in health care and its fledgling low-Earth orbit satellite project, called Project Kuiper. He pointed to Amazon’s multiyear efforts to break into healthcare, before abandoning efforts like its telehealth service, Halo Health and Fitness Band, and a healthcare joint venture called Haven.
According to Schmulek, Kuiper “looks more extreme as an investment territory,” as Amazon has committed $10 billion to build the initiative. He wrote that Google’s lack of success with Project Loon and its fiber-optic and Fi efforts suggest that “capital-intensive, low-margin utilities aren’t worth the effort no matter how ‘cool’ the technology is”.
Shmulek said Amazon should take a page out of Alphabet’s playbook and divested Kuiper, healthcare, and possibly Alexa into “other bets.” He adds that doing so will demonstrate a “healthier, more profitable core business” and will not detract from the company’s efforts to “build the next AWS.”
Shmulek is also suspicious of Amazon’s continued efforts to expand into international markets such as Brazil, Singapore and India, where competition is still stiff. He calls it a case of throwing “good money after bad,” despite the strategic value those markets may have.
When it comes to Whole Foods, Fresh Supermarkets, and Go Casherless Stories, Amazon needs to “make a call on physical groceries,” Shmulek writes. Amazon bought Whole Foods for $13.7 billion in 2017, and has continued to build grocery offerings on its website, while launching other pilot stores. Recently, the company paused further expansion of its Fresh and Go stores as Jassy seeks to cut costs.
Instead of continuing to “messing around” with Fresh and Go stores, Shmulek said Amazon should “buy a proven concept like stripped-down KR/ACI stores,” referring to Kroger and Albertsons stores. They are sold As part of the planned merger.
Amazon should focus on its core strengths and continue to push into other areas where it has gained traction, Shmulek said, encouraging continued building of its advertising and media arms, as well as a Buy With Prime service that allows websites outside of Amazon to do so. Take advantage of Prime Delivery benefits.
The current distraction approach is confusing to shareholders and needs clarification to stop continued underperformance, Shmulek added, citing uncertainty about where Amazon will fall in the AI race.
“Today we receive questions from investors asking ‘Is AWS last in AI? “,” Is retail really a profitable business? and even “Do we want Andy on the earnings call?” “It points to one fundamental issue: Amazon doesn’t have its own narrative.”
An Amazon spokesperson did not provide comment for this story but did point to Jassy’s shareholder letter in April that addressed some of the issues in Bernstein’s memo. In his letter, Jassy said the company spent several months analyzing the business and determining “whether we had conviction about the long-term potential of each initiative” to boost revenue and operating income.
On international expansion, Jassy said, “These new countries take a certain amount of fixed investment to get started and expand, but we like the trajectory they’re on.”
The letter said the company needs a “broader physical store footprint” to serve more people in the grocery market, and in terms of Kuiper, the business “represents a very big opportunity for Amazon” and is initially capital-intensive, similar to AWS.
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