A Wall Street analyst has warned Andy Jassy he needs to go back to the Day One mentality that propelled Amazon to success and focus on the opportunities that only the online giant can clinch.
Bernsteins Mark Shmulik has penned an open letter to executives at the Jeff Bezos-founded firm, saying that although his outlook on the brand is positive there is work to be done on its long-term strategy.
Shmulik points out that although Amazon is enjoying its shares being up 50% in the year-to-date, its still underperforming by approximately 52% when compared to its peers.
The analyst framed his criticism of the $1.24 trillion business by outlining that he was clearly optimistic about the road ahead, adding the asset management firm has upgraded Amazon to its best investment idea in the internet category.
However, Jassys scatter-gun approach to development has drawn criticism from investors and spectators alike.
In Jassys letter to shareholders released earlier this year, the CEO outlined plans not only for its traditional commerce business but also for advertising, healthcare, media and entertainment, artificial intelligence and satellite systems to name a few.
As well as its investment strategy Shmulikwith the backing of Amazon investorshas also criticized some of the organizations communications.
He said that a simple course of self-help could not only remedy investor concerns but also propel the brand into a stock range of $180 to $200.
Shmulik said Jassy and Amazons S-teamwhat the business calls its leadership teamneed to go back to Day One thinking, a phrase repeated by Bezos which symbolizes a start-up mindset of vitality and agility.
In Jassys shareholder letter for the past year, he did highlight that the company was asking itself about the conviction of its experiments, adding: We took a deep look across the company, business by business, invention by invention, and asked ourselves whether we had conviction about each initiatives long-term potential to drive enough revenue, operating income, free cash flow, and return on invested capital.
Post-last earnings call, I felt my role was less of an analyst and more of a therapist.
Bernsteins Mark Shmulik says $AMZN can take steps in self-help to re-focus capital and cut losses with @davidfaber and @SaraEisen. pic.twitter.com/4FBg90VvP2
Squawk on the Street (@SquawkStreet) June 7, 2023
Amazon pursuing too many ideas
In Shmuliks view, projects like Amazon Care are taking valuable attention away from projects which will materially strengthen the brand.
He said the company is simply pursuing too many ideas, with weaker ideas taking away the oxygen, capital, and most importantly focus from the truly disruptive initiatives that only Amazon can do.
To make initiatives like healthcare and broadbandknown as Project Kuipera reality, the business must divest, seek outside funding, or trim spend, he added.
He continued: Amazon has been trying for half a decade to build something in healthcare, but the goalposts keep moving, he wrote, meanwhile Kuiper has no discernible competitive advantages over operating competitors.
Healthcare isnt a pipe dream introduced by Jassythe business has been toying with the market since 2017 when Bezos was still at the helm.
Six years ago the business invested in a tech-driven lab touted to be a cloud-based telehealth service.
In 2018 the businessalongside JPMorgan Chase and Berkshire Hathawayformed Haven, a low-cost and high-quality healthcarea project it later abandoned.
Amazon has continued to invest in online pharmacies and healthcare providers before launching Amazon Care in 2020.
Good money after bad
Shmuliks criticism of Amazons plans didnt stop thereadding the company needs to reassess its geographies and experimental new stores.
On expanding into new markets, the analyst says that regions like Brazil, India and Singapore are a case of throwing good money after bad.
He said in a highly-competitive marketplace Amazon is underwater and that despite holding huge potential as a customer base, its market share is declining.
Instead of tinkering with physical stores Jassy needs to make a call on physical groceries the letter adds.
The brand has yo-yoed between opening physical shops and then closing them down againannouncing in a few years it was not only shutting a handful of grocery stores but also all of its book stores and pop ups.
Instead of trying to push its own brand, the business should purchase a proven concept such as potential divested KR/ACI stores, referring to the stores Kroger and Albertsons are selling off as part of their planned merger.
Communication is key
The letter also suggested Amazon needs to take a leaf out of the book of Big Tech competitors like Google and Meta, which break out non-core areas in earnings calls and company communications.
The result, Shmulik said, would show a far healthier and more profitable core business.
The analyst added investors want more consistency with metrics on earnings calls, as well as sharper prepared remarks to answer key investor questions before opening up the floor.
With all due respect, this managements team hasnt yet earned investors benefit of the doubt. Were grateful to have Andy Jassy now joining the earnings calls, but after six quarters post CEO appointment theres still room to tighten the messaging, particularly around strategy and progress, he wrote.
Clarity is also needed on Amazons aims with A.I., Shmulik added: We get investor questions today asking is AWS in last place in A.I.?, is retail actually a profitable business?, and even do we want Andy on the earnings call? It points to one underlying issue: Amazon doesnt own its own narrative.
In Jassys shareholder letter, he confirmed the company is developing its own large language modelsdeep learning algorithms trained on troves of data to predict and generate words or images based on an inputto enhance Amazon Web Services (AWS), a pay-as-you-go cloud computing platform where companies pick and choose the services they want.
Where to focus
There were a number of areas that Shmulik wanted Amazon to focus on: media and its Buy With Prime servicewhich allows Prime members to shop from participating online stores with membership benefits.
Amazon clearly has a competitive advantage, particularly with Shopify throwing in the towel on a competing service, and falls in the category of something only Amazon can do. Allocate more resources here, Shmulik bluntly put it.
Amazon had no comment when approached by Fortune.
