Amazon (AMZN) Crushes Q4 Estimates as Bezos Steps Down as CEO; Susquehanna Raises PT to a 'Street High' $5,200, Others Comfortable with CEO Shift

Amazon (NASDAQ: AMZN) reported another impressive set of figures for its fourth quarter ended December 31, 2020. The news, however, was overshadowed by the announcement that founder and CEO Jeff Bezos is stepping down and transitioning to Executive Chair in the third quarter. The head of AWS, Andy Jassy, will become the new CEO.

AMZN crushed analysts’ estimates of EPS $7.23 by reporting earnings of $14.09 per share. Revenue rose 44% to $125.56 billion, again higher than the $119.7 billion expected from the market.

Amazon added it expects net sales to come between $100 billion and $106 billion, which is higher by 33% - 40% compared with a period of a year ago. Operating income is forecasted between $3 billion and $6.5 billion, with the midpoint of $4.75 billion higher than $4 billion recorded in the first quarter of 2020.

“AMZN’s core retail business continues to benefit from and drive the global e-commerce inflection as ~$113bn of 4Q retail (non AWS) revenue came in 3% better than expected and $3.3bn of 4Q retail EBIT was also ~$1.4bn better than modeled,” Morgan Stanley analyst Brian Nowak wrote in a note.

“Amazon is what it is because of invention. We do crazy things together and then make them normal. We pioneered customer reviews, 1-Click, personalized recommendations, Prime’s insanely-fast shipping, Just Walk Out shopping, the Climate Pledge, Kindle, Alexa, marketplace, infrastructure cloud computing, Career Choice, and much more,” said Jeff Bezos, Amazon founder and CEO.

“If you do it right, a few years after a surprising invention, the new thing has become normal. People yawn. That yawn is the greatest compliment an inventor can receive. When you look at our financial results, what you’re actually seeing are the long-run cumulative results of invention. Right now I see Amazon at its most inventive ever, making it an optimal time for this transition.”

During a call with investors, Amazon CFO Brian Olsavsky insisted the company has a “highly effective” succession plan in place.

“I will reiterate that Jeff is not leaving. He is getting a new job. He will be involved in many large one-way-door issues, as we say, one-way doors meaning the more important decisions things like acquisitions, things like strategies, and going into grocery and other things,” he said.

Analysts also don’t seem too concerned about Bezos’ transition to Executive Chair. Morgan Stanley’s Nowak, who raised the price target on AMZN $4,200 from the prior $3,900 underlines three important factors in this space:

1. Bezos is not completely disengaging (still owning over $200bn of equity) and will still be involved in key strategic discussions and decisions. AMZN said he intends to focus his energy and attention on new products and early initiatives...in effect providing some of the same vision he always has.
2. The bench is deep given Bezos’ “S” team which includes 26 key personnel in charge of each business line across AMZN (per the press), including Andy Jassy, Brian Olsavsky, Dave Clark, and others.
3. Andy Jassy has been with the company for over 20 years, built AWS...and thereby understands the culture and execution standards at AMZN.

Similarly, Susquehanna analyst Shyam Patil hiked the price target to a "Street-High" $5,200 (up from $4,000).

“We remain Positive on Amazon. Business trends remain strong and should continue to do so in 2021. Paid units growth was extremely strong again at 47% y/y, demonstrating the accelerating shift to eCommerce. The 1Q guide was also nicely above expectations for revenue and profitability, showing no signs of slowing down after a huge holiday season.

“Ultimately, we see AMZN as a long-term secular grower whose leadership in its three key markets – eCommerce, cloud, and advertising – should emerge even stronger coming out of the pandemic,” he wrote in a note.

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