Jeff Bezos is sitting on an even bigger gold mine than he thinks. His nearly 10% stake in $1.9 trillion Amazon.com (AMZN.O) is worth some $190 billion. But he could become some 50% richer if the company were to split into two parts.
Earlier this year the founder of the e-commerce giant stepped down as its day-to-day leader and handed the reins to Andy Jassy, formerly the top executive of Amazon Web Services, the company’s cloud business. That division remains by far the fastest growing and most efficient, posting an operating margin of more than 22% in the last 12 months versus low single digits at Amazon’s online-retailing arm.
Given how the market is viewing data and cloud-software firms, AWS is also far more valuable. Much smaller but comparable companies like Cloudflare (NET.N) trade at enterprise value-to-estimated sales multiples of as much as 80 times. Firms like Palantir Technologies (PLTR.N) and Okta (OKTA.O), which are different but growing at a similar pace, boast valuations of around 24 times sales.
Say Amazon’s cloud business rakes in $75 billion in revenue next year, as D.A. Davidson is estimating. On the same multiple as those latter two firms, it would be worth about the same as Amazon as a whole right now. Sales in 2022 at the North American and international retailing arms could reach almost $500 billion, according to Davidson. Pick a revenue multiple of say 2 times, richer than where Target (TGT.N) trades but well below eBay’s (EBAY.O) level, and that would add another $1 trillion. On paper, Amazon, with no net debt, could be worth some $2.8 trillion. Bezos’s stake would clock in at almost $280 billion.
Such so-called sum-of-the-parts exercises often produce theoretical valuations that are punctured by realities. But several large companies have recently confronted breaking up. Johnson & Johnson (JNJ.N), General Electric (GE.N) and Toshiba (6502.T) have set about doing it; Royal Dutch Shell (RDSa.L) is facing pressure to do so from activist investor Dan Loeb. Shareholders sometimes value focused businesses more highly. And on occasion, as when online retailer eBay spun off its PayPal (PYPL.O) payments unit in 2015, an offspring outgrows its parent.
That’s increasingly the case with Amazon. AWS is booming while the retailing arm is facing transportation, supply-chain and labor snags, not to mention scrutiny over competition and privacy issues. Bezos’s move into the back seat could come with an even more comfortable cushion.