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Amazon Web Services will be ‘front and center’ as Andy Jassy transitions to CEO: Analyst

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Jeff Bezos announces he will be stepping down as Amazon CEO as the company reports its first $100 billion quarter. CFRA Analyst Tuna Amobi joins Yahoo Finance Live to discuss.

Video Transcript

ZACK GUZMAN: Obviously, there is a lot of reasons as to why you just upped your 12-month price target by 200 bucks to 3,800. We can get into those fundamentals first. I just want to start with your reaction to this transition of power in the position of CEO. What do you make of it?

TUNA AMOBI: Zack, this is an extremely consequential news, having Jeff Bezos step back from the day-to-day and Andy Jassy, who is very, very well regarded, essentially a pioneer of the Cloud infrastructure. So we'll kind of try to read the tea leaves, trying to figure out what this means for Amazon going forward. But it seems pretty clear to us that this is going to be a very seamless transition, right?

I mean, we knew that the handwriting was always on the wall that sooner than later, Jeff Bezos was going to take a step back. What we didn't anticipate was that it was going to happen this soon, even with all of the tech CEOs that have already been showing the same-- going in the same direction.

But all in all, I think if you look at the timing of it with the COVID-19 demand tailwinds and the company riding this huge secular growth, and also Amazon Web Services, I think, now is going to be front and center. We estimate that division is going to become even more and more significant, more so than it has ever been. So I think you see competition playing out among AWS and Google Cloud and Microsoft.

So I think essentially, other than laying the groundwork of management succession with this announcement, I think really points to the strategic importance, the emphasis that the company is going to be giving to this business, coming at a time when the whole business has come under regulatory scrutiny. Also signals that Andy Jassy is going to be much more involved in that area.

AKIKO FUJITA: Tuna, what do you think this means for AWS specifically? Andy Jassy, of course, the guy who built this into a cloud computing giant. You look at where the revenue is. It's well over half the company. Who do you anticipate will step in? And does that change the direction for where you expect AWS to go?

TUNA AMOBI: You know, they haven't signaled who is going to take Andy's place, but I suspect that it is going to be from the executive branch, which, as I said earlier, is going to be-- is quite deep. They've already made that transition on the consumer e-commerce side. Andy seems to be going pretty well.

But as far as the the business itself, I think it's really firing on all cylinders. You've got Amazon still firmly entrenched, about 1/3 of that cloud market share, although the other guys are breathing down its neck. It's now north of a $50 billion business. We saw margin expansion continuing, albeit on a slower pace. All in all, off the $1.7 trillion market cap of Amazon, we think that AWS is worth at least half of that, or more potentially, growing as we kind of look forward.

So it's a very, very attractive space with, we would think, a lot of low hanging fruit still across the board, but in the US and international. So I think it's time to buckle up here. The competition is going to get even more intense. I think Amazon is going to be front and center. And remember, Jassy is not going to take his eyes off the ball simply because he's going to be running the entire company. So whoever steps in is going to essentially continue along that strategy of cutthroat competition, cost reduction, and so on-- innovation.

ZACK GUZMAN: And let's talk more about the results here, too, you know, and the numbers basis as to why you're boosting your price target by 200 bucks here, about $500 worth of upside you still see ahead. What did you make of the quarter in terms of the beats we saw from Amazon and how maybe, you know, Jassy's going to be inheriting a situation where you already do have a company that seems to be firing on all cylinders with what we've seen in this pandemic?

TUNA AMOBI: You know, listen, Zack, I think Akiko couldn't have said it better. It was a blockbuster quarter, right? I mean, any way you cut it, I think there was a long list of positive takeaways, acceleration in underlying business with margin expansion, beating the top and bottom line, and providing a guidance that we think reinforces all of those underlying trends. So, to your question, I think the timing seems quite fortuitous to be making this change.

More or less, I would argue the company's on some type of cruise control. I mean, you would really have to be-- you know, it would take a lot to screw it up at this point. So I think, as we kind of look forward, I think there is really more upside to the shares, despite the legitimate questions on valuation. We think all of those secular trends and the stars are aligning, both on the e-commerce and the cloud space, to make us constructive.

And now with this visibility on management succession kind of removes one of the recurring questions that investors have had-- what happens-- who is going to succeed Jeff Bezos? And remember, Jeff is not all of a sudden sailing into the sunset. He's going to pretty much be involved in the bigger picture issues. And all of that provides additional comfort for investors.

AKIKO FUJITA: Tuna, if you look at the balance sheet, you may say the company is operating on cruise control. But of course, there are a lot of headwinds the company faces on the regulation front, as well as the pushback they're facing from workers. How significant do you see that risk being? And, you know, we saw Jeff Bezos testify last year remotely. Andy Jassy's stepping into that position now how do you think he navigates the company through a string of investigations that are already underway that hit at the core of the company's business model?

TUNA AMOBI: Indeed, and that's an area where we're going to be closely keeping an eye on. And I would think that's actually an area where Jeff Bezos ironically did not care much to be involved about. So that's something definitely where Andy Jassy is going to need to get up to speed very fast. That being said, Akiko, I don't envision any earth shattering regulatory imposition that would kind of distort or disintegrate [INAUDIBLE].

Granted, there's going to be more regulation with the Democrats controlling the White House and the Congress. But I would think that some of the other big tech companies, frankly, would have a lot more to contend with. Also, I think having Andy Jassy run the company can pretty much remove the possibility that there could ever be a near term or medium term spin-off of the AWS unit any time soon, as has been speculated. All of that kind of leads us to believe that the company-- the regulatory risk, at worst, is manageable.