Throwdown. The headline ran on Thursday afternoon. Interesting to say the least. The story began with an apparent rejection by Kindle Direct Publishing of a book written by Alex Berenson questioning certain beliefs around the coronavirus pandemic that spread around the nation as well as the planet this spring. Alex Berenson's book goes by the title "Unreported Truths About Covid-19 and Lockdowns." Kindle Direct Publishing is Amazon's (AMZN) outlet for the self-publishing of e-books. The headline though rooted in, was not really that early Kindle rejection. The headline was the response on Twitter (TWTR) of Tesla (TSLA) CEO Elon Musk to that developing story.
It's no secret that last summer, before the entire world turned upside down, the U.S. Department of Justice had announced an antitrust review into much of big tech. Such giants as Apple (AAPL) , Amazon, Facebook (FB) , and Alphabet (GOOGL) were mentioned. First Alex Berenson tweeted a post showing that his book did not meet Amazon's "guidelines for sale." Then Musk reacted... "This is insane@JeffBezos" ... Musk added "Time to break up Amazon. Monopolies are wrong!" For their part, Amazon later acknowledged that the book had been removed in error, was being reinstated., and would be available on the site within hours.
It would be key to note that while Tesla is the clear market leader in the manufacture of electric vehicles, that Amazon is invested in smaller rival Rivan, and has been connected to talks with autonomous vehicle technology startup Zoox in the financial media. The two high profile leaders also cross paths in privatized space travel. Musk's SpaceX just recently made a big splash in renewed U.S. space travel last week. Bezos would be the name behind Blue Origin, a competitor in that "space."
What Do I Think?
About Covid-19? I live in New York. The disease is real. The disease is awful. No, this piece is not about that. About Twitter? I use Twitter as a vehicle to get whatever it is that I wrote that day out to more readers. Twitter is useful. The president, regardless of one's political view, made Twitter relevant again. But, no. No, this is not even about a probably imaginary fight between Elon Musk and Jeff Bezos. I have frequently traded Tesla (much more successfully once I learned to stop shorting that name), but this one should have been an investment. This piece is more about what Musk posted. A break-up.
Probably not realistic as one who has almost perpetually been long a core position in Amazon, as well as often trading a separate position around that core long. For kids like me, I think I like the sound of a break-up. Maybe management would not like to think of it, but for shareholders, is there a chance that perhaps the sum of the parts might add up to well more than the whole? What would that sum even be?
While Amazon is best known by the public as the nation's (planet's?) dominant provider of home delivery from an e-commerce platform, what is that business worth? I mean though this is not where the margins is, this is the segment that by nature must incur much higher expenses related to providing a safer environment to employees, and subsequently, customers. This is however, the segment that drives the others. This is the segment that keeps the name of the firm on the minds of the public. On top of that, advertising is a big, high margin business for Amazon. Just how reliant is this performance upon the folks sitting on their computers, or glued to their mobile devices who just browse for whatever it is that they either want or need in the moment. One, if not done in real-time, the want sometimes passes, and the individual never gets to a physical store. Two, some individuals still will not enter a local retailer out of fear, and they're not necessarily wrong to feel that way.
How about AWS or Amazon Web Services as a stand alone business? What kind of valuation do you think Wall Street might put on that unit. Regular revenue growth in the 30% to 40% range. Dominant marketshare with only one key competitor (Microsoft: (MSFT) ), and maybe just two or three others that even matter at all. Then we can go into devices, such as home products (Alexa), or services such as the massively successful Amazon Prime, which maybe could be a business by itself, that acts as a gateway between the e-commerce business and the video, music,and reading services that would end up competing directly with Apple, Alphabet, Disney (DIS) and even Sony (SNE) if ever unleashed and/or focused upon.
In The End
Yes, I am still long Amazon. My target price as I have written recently is a cool $2625. The shares are building a base since earnings in late April, but are still sliding higher. I do not expect a break-up to be announced anytime soon. I think Elon Musk likes to mess around on Twitter. That said, if you break up Amazon, I will add at least $300 to my target price. No joke. That is a conservative number at that.
(Amazon, Apple, Facebook, Alphabet, Microsoft, and Disney are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)