There has been a significant level of chat online in the past few days of the possibility of an “Amazon split”. That’s a scenario where the Amazon Web Services (AWS) division of the company is separated from the retail and marketplace parts of the Seattle-based ecommerce behemoth.
The rationales for an Amazon split are various but several are particularly significant and worthy of investigation. From an investor point of view, it could well be that by splitting the organisation up that more shareholder value could be released: they are worth less together than they are alone. That was exactly the rationale with the eBay and PayPal split.
Reason two: split up voluntarily before governments force that upon Amazon. Amazon is truly gargantuan and there are fears that an antitrust action in the United States will eventually mean that it is required to separate. President Trump is no fan of Amazon or founder and CEO Jeff Bezos and could be a catalyst for such regulatory action. A smaller business may attract less ire. As one keen Amazon analyst has noted:
There has been greater noise of late regarding the desire to investigate and potentially regulate the company. By separating the retail and AWS businesses, Amazon could minimize or avoid the risk of increased regulatory pressure.
– Mark May, Citigroup
The third reason is more prosaic: such a big organisation is always going to be difficult to administer and a split may make it more manageable. And, obviously, the don Jeff Bezos isn’t going to be in the hotseat forever.
From a merchant perspective, there could be several impacts of this development and potentially reasons why it is welcome. President Trump has his eye on Amazon and would love to give Bezos a kicking. That could come in the shape of a federal online sales tax or the like and that would be bad for merchants.
But the big concern is surely related to resources: Amazon needs deep pockets to develop and experiment with the service it offers. The retail section of the business can sometimes struggle to be profitable. The funds that Amazon uses often come from the AWS part of the organisation, which is a veritable cash cow. An Amazon split may make such resources harder to come by.
3 Responses
If Amazon stock splits then then Amazon will be worth less because it will be unable to expand internationally and bring new services onboard. Aws cloud computing is the cash cow with a %27 profit margin bring ing in over $7 billion in profit per year. It is this profit that funds Amazon s other ventures and expansion.
Amazon international retail/market places loses billions of dollars every year.but Amazon splits then the profits from aws will be lost to Amazon and hence Amazon s international expansion will stop and Amazon will be unable to bring in new services and ventures. Jeff Bezos will know this and hence he will be against splitting up the company.
What would a split mean in practical terms? Two independent companies with separate listing on the stock exchange? Or perhaps the creation of one holding company (single listing) with a new name, like ‘Alphabet’, owner of Google? Would Jeff Bezos still be at the top of both companies pulling the strings?
Generally – seems a wise move – but impossible at this stage to say how it might impact on us, the small business folk.
I’d rather see a split of Amazon the marketplace from Amazon the seller.
https://www.bbc.co.uk/news/business-45579135
Poacher / Gamekeeper…