Disclosure: I own shares and January 2025 call options of Amazon
(Note: there are some material changes that I made after receiving feedback which I published here. I encourage you to read the amended post to understand the full context)
In the first earnings press release following the pandemic, Jeff Bezos mentioned the following:
“If you’re a shareowner in Amazon, you may want to take a seat, because we’re not thinking small.”
Bezos kept his promise. He certainly did not think small, and in fact, despite his earnest warning, I suspect almost all of Amazon shareholders underestimated how big Amazon was thinking, especially on its “Other Bets”, a segment for which Amazon provides paltry disclosure. To be fair, they don’t even report an “Other Bets” segment; it is a segment I had to invent to estimate how much Amazon is potentially investing beyond Amazon first and third party retail, Prime, Advertising, and AWS. Once I did the math, I indeed had to take a seat since my head was spinning a little.
For the visually inclined, the following meme is perhaps a good summary, but we are getting ahead of ourselves.
In Section 1, I outlined Amazon’s business segments and how I’m projecting these businesses to perform in the future. I briefly discussed rationale for some of these assumptions.
In Section 2, I delved into a more granular cost structure analysis of each of Amazon’s reporting segments to explain the underlying economics of overall Amazon Retail and AWS and then estimate Amazon’s Other Bets potential losses. I should mention that this update is less about narratives and more about numbers.
In Section 3, I had a brief qualitative discussion on “Other Bets”.
In Section 4, I estimated Amazon’s capex in North America, International, and AWS separately and then outlined the implied expectations in current stock price. I also touched on some popular memes such as “AWS basically funds Amazon Retail” and “You get Amazon Retail for free”, both of which I disagree with.
In Section 5, I will leave some concluding remarks on Amazon, and will disclose my overall current portfolio.