Bernstein Writes Brutal Open Letter to Amazon CEO Andy Jassy
Bernstein, one of the top Wall Street research firms, wrote an open letter to Amazon's leadership.
It urges Amazon to refocus on a smaller number of areas and provide more consistent messaging.
You'd have made more in an index fund than investing in Amazon over the past 5 years.
In the past five years, you'd have made more by just sticking your money in an index fund, rather than investing in Amazon.
Investors are not happy about this and they want change, according to one of Wall Street's top research firms.
In a brutal open letter to Amazon's CEO Andy Jassy and its board of directors, Bernstein urged a reassessment of the company's direction to "quell investor concerns around the current investment strategy and investor communications." The letter, published on Thursday, said Bernstein remains confident in Amazon's potential — it recently upgraded Amazon to its "best investment idea in Internet" — but is seeing growing investor frustration over the the company's lack of focus.
"We fully support Amazon's efforts to uncover and capture the next AWS-sized opportunity. 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,'" Bernstein analyst Mark Shmulik wrote.
The letter recommended Amazon divest some of its recent large investments in healthcare, satellite internet service, and unprofitable international markets, while clarifying its approach to its struggling physical grocery business. It also advised Amazon to share clearer disclosures around big bets, like Alexa, and to come up with more consistent messaging for the investor community.
Most importantly, Bernstein said Amazon should get back to its famous "Day One" mindset, which preaches the importance of maintaining a speedy, risk-taking entrepreneurial zeal found on a startup's first day. Many employees have been complaining about the loss of Day One mentality in recent years, as Insider previously reported.
"It's time to re-focus capital, time to re-take the narrative, and time to get back to Day One," the letter said.
Amazon's spokesperson declined to comment, and instead pointed to Jassy's annual shareholder letter. Jassy wrote in the letter that the company is optimistic about grocery, satellite internet, international businesses, and healthcare services. He also wrote that Amazon took a "deep look" into each investment area in recent months to determine their financial feasibility.
"Change is always around the corner," Jassy wrote in the letter. "I'm optimistic about our future prospects because I like the way our team is responding to the changes we see in front of us."
Bernstein
Invest in ideas 'only Amazon can do'
Bernstein said Amazon has spread itself too thin by investing in too many ideas in recent years. It said the company needs to narrow its focus and be more stringent about project timelines and milestones. Here are the six recommendations:
Divest, seek outside funding, or trim spend across Healthcare and Project Kuiper: Amazon's big investments in healthcare and the Project Kuiper satellite internet service have been questionable with little results to show for. At the very least, a separate "bigger bets" disclosure of these projects should be considered, it said.
Amazon's big investments in healthcare and the Project Kuiper satellite internet service have been questionable with little results to show for. At the very least, a separate "bigger bets" disclosure of these projects should be considered, it said. Exit underwater international markets: Amazon has no "incumbency advantage" in markets like Brazil, Mexico, and Singapore, and continues to lose money in India. "Is it worth continuing to fight for 2nd or even 3rd place in a foreign market with no discernible competitive advantage?" Bernstein wrote.
Amazon has no "incumbency advantage" in markets like Brazil, Mexico, and Singapore, and continues to lose money in India. "Is it worth continuing to fight for 2nd or even 3rd place in a foreign market with no discernible competitive advantage?" Bernstein wrote. Make a call on physical grocery once and for all: While the physical grocery push makes sense, Amazon has struggled so far, with Whole Foods sales more or less stagnant since its acquisition in 2017.
While the physical grocery push makes sense, Amazon has struggled so far, with Whole Foods sales more or less stagnant since its acquisition in 2017. Double down on Buy With Prime: Buy with Prime, a new service that allows Prime members to shop on third-party websites, has massive potential and Amazon should "allocate more resources here," Bernstein argued.
Buy with Prime, a new service that allows Prime members to shop on third-party websites, has massive potential and Amazon should "allocate more resources here," Bernstein argued. Continue to build out Amazon Media into the next great media property: Amazon can continue to gain share in the media space by growing its array of services, including original content, theatrical, and live sports, among others.
Amazon can continue to gain share in the media space by growing its array of services, including original content, theatrical, and live sports, among others. Do we need more 'same-day' and 'next-day' delivery? Bernstein remains skeptical about faster delivery's ability to drive more frequent shoppers and its financial viability.
Bernstein
In terms of clarifying its narrative with the investment community, Bernstein pointed to the following three areas:
Breakout 'other bets' disclosures: Bernstein believes Amazon's core retail business would be much more profitable if it stripped out investments in other bets, like Kuiper, healthcare, and Alexa.
Bernstein believes Amazon's core retail business would be much more profitable if it stripped out investments in other bets, like Kuiper, healthcare, and Alexa. Complete, specific, and consistent messaging: Amazon investors ask for call-back notes "far more than any other company we cover" because its earnings call usually runs out of time and is full of elongated answers. There's also a lack of consistently in certain metrics, Bernstein said.
Amazon investors ask for call-back notes "far more than any other company we cover" because its earnings call usually runs out of time and is full of elongated answers. There's also a lack of consistently in certain metrics, Bernstein said. Investor communications win investor trust: Amazon's leadership should cut down on the rhetoric and share more specifics with investors. "With all due respect, this management's team hasn't yet earned investors' benefit of the doubt," the firm added.
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Source: Business Insider
