Jeff Bezos is stepping down as Amazon CEO

New York (CNN Business)Amazon founder Jeff Bezos will step down from his role as chief executive later this year and transition to the role of executive chair, the company said Tuesday. He will be replaced by Andy Jassy.

Bezos has been Amazon’s CEO since its founding in 1995. He oversaw its growth from an online bookseller into a $1.7 trillion global retail and logistics behemoth, which has also made Bezos into one of the world’s richest people. Jassy has worked for Amazon since 1997 and currently serves as CEO of the company’s cloud business, Amazon Web Services, its biggest profit driver.

“This journey began some 27 years ago. Amazon was only an idea, and it had no name,” Bezos wrote letter to employees Tuesday. “The question I was asked most frequently at that time was, ‘What’s the internet?’ … Today, we employ 1.3 million talented, dedicated people, serve hundreds of millions of customers and businesses, and are widely recognized as one of the most successful companies in the world.”

The news came as part of Amazon’s fourth-quarter earnings report. The company handily beat Wall Street analysts’ projections for both sales and profit, capping a banner year as the pandemic boosted its retail and cloud businesses.

The company’s shares were essentially flat shortly after the market closed Tuesday, but gained almost 1% two hours after the closing bell. Amazon’s stock has grown nearly 69% over the past year.

Andy Jassy, who currently heads Amazon Web Services, will take over as Amazon CEO from Jeff Bezos later this year.

Massive earnings beat

Amazon (AMZN) posted quarterly net sales of $125.6 billion, up 44% from the same period in the prior year and well ahead of the $119.7 billion Wall Street analysts had projected.

Net income in the quarter hit $7.2 billion — nearly double the $3.7 billion Wall Street predicted and more than double the $3.3 billion in income the company earned in the year-ago quarter. Earnings per diluted share were $14.09.

The quarterly results include sales from Prime Day, which was held October 13-14 after being postponed over the summer because of the pandemic. Sales from Prime Day, as well as continued demand for online shopping as Covid-19 cases surged, contributed to 40% year-over-year growth in Amazon’s net sales in North America, which totaled more than $75 billion. International sales jumped 57% to nearly $37.5 billion.

Amazon said it delivered more than a billion products to customers worldwide during a “record-breaking holiday season.”

Revenue from Amazon Web Services grew 28% from the prior-year quarter to more than $12.7 billion, which the company attributed to “significant customer momentum,” including new commitments and migrations to the cloud by the likes of JPMorgan Chase (JPM), Twitter (TWTR), Metro-Goldwyn-Mayer, among others. AWS posted full year revenue of more than $45 billion and operating income of $13.5 billion.

“AWS is well on its way to creating an annualized $50 billion revenue company,” Patrick Moorhead, principal analyst at Moor Insights and Strategy, said in an emailed statement. “This makes AWS larger than Salesforce.com and SAP combined. Equally impressive is that AWS delivered over half of the company’s operating profit.”

A key growth area for Amazon is its advertising business. The company’s “other revenue,” which primarily includes advertising, grew 64% during the quarter, an acceleration in growth from the two previous quarters, CFO Brian Olsavsky said on a call with analysts Tuesday.

Amazon’s strong overall sales performance “may obscure the more important story of Amazon’s surging ad business,” eMarketer Principal Analyst Andrew Lipsman said in a statement. “Two consecutive quarters of huge bottom-line beats in the face of rising operational costs and softening AWS growth points to a much more profitable ads business than previously appreciated.”

As for the full year results, Amazon reported total net sales increased 38% to $386.1 billion, more than $6 billion more than analysts had projected. Net income for 2020 reached $21.3 billion, or $41.83 per diluted share, an increase of nearly 84% from a year earlier.

The strong growth in profit came even as Amazon spent more than $11.5 billion on pandemic-related costs in 2020, Olsavsky said on the call. That includes $2.5 billion in additional Covid-related employee pay and ramping up in-house employee testing. Despite those efforts, Amazon has faced intense scrutiny over its warehouse safety during the pandemic.

Nucleus Research analyst Daniel Elman said he’s “not entirely surprised” to see the huge jump in annual sales “given the worldwide shift to e-commerce in light of the pandemic.”

“With this change in consumer behavior likely to remain permanent, and Amazon’s accelerating shipping and fulfillment speeds, the company’s dominance as the go-to platform for e-commerce will remain unchallenged,” Elman said.

For the current quarter, Amazon anticipates revenue will grow between 33% and 40% compared to the prior-year quarter to between $100 billion and $106 billion. The company also expects to incur approximately $2 billion in costs related to Covid-19 during the current quarter, putting quarterly income guidance at between $3 billion and $6.5 billion, compared to the $4 billion Amazon earned in the first quarter of 2020.

Bezos stepping down

Bezos said in his Tuesday letter that he is excited for the transition, which will free up more time for him to work on outside projects. As executive chair of Amazon, he will focus on “new products and early initiatives,” he said.

“Being the CEO of Amazon is a deep responsibility, and it’s consuming,” Bezos wrote. “When you have a responsibility like that, it’s hard to put attention on anything else. As Exec Chair I will stay engaged in important Amazon initiatives but also have the time and energy I need to focus on the Day 1 Fund, the Bezos Earth Fund, Blue Origin, The Washington Post, and my other passions. I’ve never had more energy, and this isn’t about retiring. I’m super passionate about the impact I think these organizations can have.”

He added that Jassy “will be an outstanding leader, and he has my full confidence.”

Jassy is an obvious choice for the top job, especially after Jeff Wilke, the head of the company’s worldwide consumer division and another veteran Amazon leader, announced his retirement in August. Jassy is a longtime member of Amazon’s elite leadership group, the “S-team,” and has overseen the growth of AWS into a cash cow and the world’s biggest cloud computing provider.

The cloud computing market is expected to expand even further in coming years as the pandemic accelerates companies’ adoption of cloud, as they aim to be more effective in an era of digital-first interactions.

“Andy Jassy stepping into the CEO role at Amazon is a natural fit,” Tim Hubbard, assistant professor at the University of Notre Dame’s Mendoza College of Business said in an emailed comment. “Amazon Web Services is a powerhouse within the company, driving a lot of profitability. The transition may indicate that for the core of the company, it’s going to continue down the path it’s going.”