Tonight Amazon announced that AWS CEO Andy Jassy (CEORater Profile HERE) will become CEO in Q3 2021 as founder & current CEO Jeff Bezos transitions to the Executive Chairman role. Also, AWS could be worth $1-2 trillion depending upon how liberal one is with valuation metrics.
We believe this CEO transition will work well. Jeff Bezos learned from his previous experience of letting go of the reins when he hired Joe Galli Jr. to serve as Amazon (tkr: AMZN), President and Chief Operating Officer in 1999 (Mr. Galli left Amazon for Internet bubble-darling VerticalNET in July 2000). Unlike the Galli shotgun marriage, Andy Jassy is a long-time Amazon employee having joined the company in 1997. Mr. Jassy has served as AWS CEO since April 2016. AWS has evolved into Amazon’s most strategic business unit in our view. Companies ranging from startups to well established firms leverage AWS to reduce operating expenses and to leverage advanced capabilities ranging from core AI and ML services to facial recognition to advanced analytics and more.
Read Jeff Bezos’ email to employees: HERE
AWS generated revenue of $12.7 billion and $45.4 billion in the December quarter and for the full year 2020. This represents year-over-year growth of 28% and 30% respectively. AWS is also Amazon’s most profitable operating unit having generated operating income of $3.6 billion and $13.5 billion for the December quarter and full year 2020. Given that investors routinely value growing Enterprise Software companies in the 20-40x revenue range (crazy if you ask us), AWS would carry an implicit valuation range of $900 billion to $1.8 trillion assuming 20-40x trailing revenue. We prefer a multiple of cash flow, one that contemplates that zero interest rate policy is not fixed at zero in perpetuity and that recognizes today’s Technology bubble for what it is – a bubble.
Below is Andy Jassy’s keynote from AWS re:Invent, December 2020.