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Tim argues that Amazon should spin off AWS, or perhaps he's arguing for government intervention to that effect. What do we think would happen to the retail Ama
by flerchin 4y ago
Tim argues that Amazon should spin off AWS, or perhaps he's arguing for government intervention to that effect.
What do we think would happen to the retail Amazon if it did not have the giant profit-center of AWS? Presumably it would crumble under a lack of profit, or start doing the MBA thing to generally worsen everything to drive up the quarterly results.
- brianwawok 4y agoAmazon market cap is ~1T today. How would you split that between AWS and Retail? Depending on how much of the value goes along to AWS... retail could look like a lot of high value / low margin businesses that do just fine. Obviously if you give 99% of the value to retail and pull the profit center, it would be bad. But that wouldn't happen.
- jsnell 4y agoI don't quite understand the question. One wouldn't try to split the market cap. Instead you'd split the company (each share in Amazon becomes on share in Nu-Amazon and one share in AWS). The prices of those new shares will determine the market cap of each half.
- rhplus 4y agoWith that strategy, at the time of split you would be valuing them each at 50% of $1T.
- usefulcat 4y agoYou seem to be assuming that the two kinds of shares would or must have the same price.
- reducesuffering 4y agoNo you wouldn't. You'd have one share of AWS and one share of Amazon, that the market previously priced the sum of them as $1T. On market open, the market will have some volatility finding the estimated price difference between them, but I wouldn't expect any actual sales of Amazon retail at around $500b.
- slt2021 4y agoIt depends on how would you split the corporate debt between the two entities. If you load up enough debt on AWS, and have Retail debt free and with cash - it is possible to have both shares valued at the same price Remember that Market cap = Enterprise value - Net debt. We can argue that enterprise value of business is different, but by changing net debt figure of each company we can make market cap of both firms equal
- jjoonathan 4y ago...and the resulting market caps will have a ratio. Brianwawok was wondering what the ratio would be. If the multiples of each business were the same, we'd expect a roughly 75/25 split along the lines of profit, but the multiples are probably not the same, and that's the interesting part of the question. It represents market judgement on the future growth trajectories of e-commerce vs e-infrastructure.
- jsnell 4y agoI would like to read it that way, but then the GP's "if you give 99% of the value to retail and pull the profit center, it would be bad" comment makes no sense. It is suggesting the value is assigned, rather than found via price discovery, and the assigned values would not match the underlying assets.
- jjoonathan 4y agoThat's a highly uncharitable reading.
- jsnell 4y agoAgain, I would love to read it some other way, but there is none that makes sense. In your reading, how does one put "99% of the value" in one part but "the profit center" in another?
- jjoonathan 4y agobrianwawok's post uses the "give a value X to Y" colloquialism, which usually means "have an opinion that Y has a value of X." You seem to be reading it as "impose price X on Y through socialist decree," or something. I thought that was uncharitable.
- jsnell 4y agoSorry, I have never heard anyone use "give a value" like that. I'll trust you that it's idiomatic, but even with that substitution it still doesn't make sense. "Obviously if you have an opinion that retail has 99% of the market cap and pull the profit center, that would be bad". What in the world is that supposed to mean? Our opinions aren't going to affect the world, there will no consequences if somebody has that opinion. How is it bad? And with that interpretation, I have no idea of what "pull the profit center" could mean. Because that has to be talking about the way you split the company, not about an opinion you'd have.
- replygirl 4y agogp is basically asking what would be the price for each at time of split
- brianwawok 4y agoNot quite sure how this one was so hard to parse. You don't split the market cap of a company? Really? If I have a company worth 1 billion dollars and split it exactly down the middle in assets and liabilities, the assigned value of each company is nowhere near 500 million dollars? Yes you will lose a little bit in terms of "lost synergies", but the starting point for a split (or a merger) is to add together or divide up the market cap.
- ivalm 4y agoI think the claim is that there are synergies to having both so the valuation of two pieces separately would be lower than together. How much would be this discount I am not sure.
- ghaff 4y agoWell, it wouldn't be the "MBA thing" so much as that, if you want to be a public company with shareholders (or even a private company really) you have to have some path to profitability. You can't just lose money forever.
- flerchin 4y agoRight the MBA thing is where you generally worsen things in search of quarterly improvement. "Yes we're making some money, but we could be making more money."
- 40acres 4y agoI don't understand the anti-trust argument against Amazon Retail and AWS. Amazon Retail went vertical by building their own cloud solution and then sold that solution to customers - what's anti-trust about this?
- deleted 4y ago[deleted]
- candiddevmike 4y agoThe folks who don't have a subsidized cloud solution have to eat some of their margin paying for services like AWS, which Amazon Retail gets effectively for free/others pay for.
- 40acres 4y agoI still don’t get why it’s a problem. There should be an advantage in taking the investment needed required to go vertical and leverage that for your entire business.