Why Amazon Stock Climbed After Jeff Bezos’ Departure

July 6 was an eventful day for Amazon: Jeff Bezos stepped down from the CEO position, and the stock finally reached all-time highs. Here is how both events could be related.
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July 6 was not one of the best days in the stock market. All major indices, including the S&P 500 and the Nasdaq, pulled back after climbing to all-time highs last week. Immune to bearishness was Amazon stock  (AMZN) - Get Report: in the green for the day and at a historical peak not reached since early September 2020.

The big news, and the most likely catalyst for Amazon’s large gains on a down day in the markets, was the change of leadership. Effective this Monday, founder Jeff Bezos is no longer the company’s CEO, as Andy Jassy takes the chief executive seat.

Figure 1: Jeff Bezos and Andy Jessy.

Figure 1: Jeff Bezos and Andy Jessy.

(Read more from the Amazon Maven: Amazon Stock: Seesawing Through The First Half Of 2021)

A new era for Amazon

Andy Jassy assumes the top position at Amazon with impeccable credentials. Amazon Web Services’ previous CEO helped to turn the cloud platform and infrastructure business into a $50 billion annual revenue behemoth that dominates the IaaS market. See chart below on AWS’ quarterly sales and op profits, and notice how both have grown fast and consistently.

Under Mr. Jassy, it is possible that Amazon will pivot its business strategy from “growth at all costs” to “profitable growth”. The former is a typical founder strategy that made most sense with Jeff Bezos in control. The latter is a more mature approach that could elevate Amazon to a new era.

Amazon stock is already richly valued at a current-year P/E of around 66 times. Despite the high multiple, I believe that demand for AMZN could increase, and the stock price could rise further, if the company is able to improve its margin profile – arguably the best way for Amazon to boost earnings, the denominator in the P/E equation.

(Read more from the Amazon Maven: Amazon Stock Price: How It Can Climb Up To 30%)

Fresh perspective on sticky issues

Amazon is constantly under fire for two reasons: antitrust and employee relations. While hard to quantify, I believe that both act as a drag to Amazon share price and valuation. During his tenure as CEO, Jeff Bezos was unable to address either issue satisfactorily.

To be clear, I have no reason to believe that Andy Jassy will be better at managing regulatory scrutiny or labor disputes than his predecessor. But at least a new CEO could bring a fresh perspective to the table that may, at least, lead to investor optimism and set the stock up for a new leg higher.

Twitter speaks

Andy Jassy is now officially Amazon’s CEO – and the stock finally reached all-time highs, after being ten months in a drawdown. What are your expectations of the company’s new chief executive

Is the price right?

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Amazon Maven)