Should Amazon be broken up?
Billionaire activist investor Daniel Loeb, CEO of Third Point, last week shared with investors his belief that the market is not recognizing the respective full value of Amazon.com’s e-commerce and Amazon Web Services (AWS) businesses, rekindling discussion into a potential break up.
In June, a bipartisan group of House lawmakers proposed antitrust legislation against the major tech platforms (Apple, Google, Facebook and Amazon) that some speculated could lead to the splitting of Amazon into two websites — one for third-party sellers and another for first-party — and forcing the company to divest its own products. Amazon has been accused of unfairly competing against marketplace sellers and stealing third-party seller ideas in developing its own private label products.
Joe Lonsdale, general partner at venture-capital firm 8VC, also charged in a recent Wall Street Journal editorial, “AWS subsidizes Prime, harming consumers in the long run.”
Third Point, known for launching activist campaigns against corporate boards, had already been holding discussions with other hedge funds about a possible AWS spinoff, according to the WSJ.
In an investor call last week, Mr. Loeb assessed AWS’s enterprise value at over $1.5 trillion and Amazon’s retail operations at $1 trillion for a combined $2.5 trillion — nearly $1 trillion more than the company’s current market valuation.
Beyond retail and AWS, Amazon’s businesses include logistics, advertising and media (Prime Video, Prime Music, book publishing, Fire TV and Twitch).
In a subsequent shareholder letter, Mr. Loeb shared that Third Point had “significantly increased” its Amazon holdings as he believes new management led by Andy Jassy is considering a long-term strategic plan that “may include several bold initiatives that are the subject of wide market speculation at the proverbial investor water cooler.”
The letter said investors should also benefit from Amazon’s recent return to repurchasing shares and its move to provide greater disclosure into operations, including advertising revenues.
“It’s not often that you get to buy shares in a high-quality company at the low end of its valuation range ahead of a meaningful reacceleration in growth at a 30%-40% discount to its present intrinsic value with an almost unlimited runway of potential to compound in value,” wrote Mr. Loeb.
- Activist Investor Daniel Loeb Sees Roughly $1 Trillion of Untapped Value in Amazon – The Wall Street Journal
- House Bills Seek to Break Up Amazon and Other Big Tech Companies – The Wall Street Journal
- Amazon is everywhere. Here’s how the US could break it up – CNN
- The Case for Splitting Amazon in Two – The Wall Street Journal
- Fourth Quarter 2021 Investor Letter – Third Point
- Break Up Amazon, Make More Money – NASDAQ
- Former Walmart U.S. CEO raises prospect of breaking up Amazon – RetailWire
DISCUSSION QUESTIONS: Do you see a benefit to breaking up Amazon? Which parties would benefit most from a breakup and which would be negatively affected?