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Amazon's stock buyback shows a ‘sharper focus on profitability’: Analyst

Wells Fargo Senior Equity Analyst Brian Fitzgerald joins Yahoo Finance Live to discuss the rise in Amazon shares as the company announced a stock split and buyback program, ride-share drivers quitting as gas prices soar, and the EU and UK launching antitrust probes into Google and Meta.

Video Transcript

- Brian Fitzgerald covers Amazon and others in the digital space over at Wells Fargo. Brian, good morning, to you. You were the only analyst that I saw-- highlight the potential for Amazon to be enter-- to enter the Dow at some point because of the stock split. Big picture-- what would that inclusion mean to Amazon shareholders?

BRIAN FITZGERALD: And thanks, Brian, good morning, and thanks for having us. Look. That-- that stock split is important because it increases accessibility to a broader array of investors. And it does allow that Dow inclusion. Theoretically, academically, does it really change the stock price? No. But it makes it more accessible.

And if you are included in the Dow, then just your average index-based funds have to own you. So that creates demand for the shares, and the shares will accrete because of that.

- Hey, Brian, it's Julie here. And I'm just curious. Just taking a step back from that, that combined with the buyback, what is this sort of signal to the market in terms of the phase that Amazon is in now? It doesn't seem like, you know, you go through these phases with Amazon, where it's reinvesting in the business. It seems like it's not necessarily in that kind of a phase right now.

BRIAN FITZGERALD: Yeah, thanks, Julie. It's a great question. So they replaced the buyback they bought about half into that, about $2.1 billion out of the five. They made it bigger to $10 billion. That's against Google and Facebook, who have $40 to $50-- $50 billion repurchases in place.

But-- but we think that buyback is just further evidence of a sharper focus on profitability. Amazon undertook a significant investment cycle over the last two years to support, you know, the rapid e-commerce expansion that happened during COVID to support one-day, two-day, same-day prime shipments.

We believe that investment intensity is now downshifting to a more sustainable pace. We're further encouraged by the fact that they're focused on fast delivery but not ultra fast delivery options. You know, we don't want to see them competing too hard against these super aggregator apps-- Uber, DoorDash, Instacart, Gopuff, for delivery volumes with uncertain unit economics.

So, you know, I think the buyback and the investment downshift we're seeing means that they're focused on profitability and delivering return to shareholders.

- Brian, you mentioned Uber right there. And there's a lot coming at this company, Uber and, of course, Lyft-- companies that you follow. Of course, you're seeing drivers clash a bit with Uber and Lyft drivers on this mass-- on masks and whether they need to wear them in the cars.

But look, we've seen gas prices go up significantly in the recent weeks. What's the risk to Uber and Lyft, that drivers leave this platform because they're not really making much money with gas prices where they are?

BRIAN FITZGERALD: Yeah, it's a great question, Brian we caught up with both Lyft and Uber this week. You know, Dara at a recent conference said, a 20% increase in fuel prices translates to a 1% increase in fees to riders. And it leaves our earnings and our drivers earnings intact.

So the-- the beautiful thing about these marketplace companies-- Uber, Lyft, Airbnb, DoorDash, is the-- the-- the-- they just marry up supply and demand. And the market meter's out, what you should pay. So if drivers are seeing increased costs and they shift off the platform, you have a decrease in supply. There's still maybe even more demand now that gas prices are going up.

And I don't want to drive my own car, and I want to start using ride sharing. And-- and ride sharing in the true form of that phrase, not just me jumping into an Uber and Lyft but the more economic ways of doing it, where you shared rides with other riders.

That shut down during COVID. And now that COVID is expiring and ameliorating, we're starting to see the ride sharing and the loyalty programs kick back in. So it's our belief that there's many ways for these markets to clear themselves.

And, ultimately, that increased demand that I was just talking about, that's brought about by higher gas prices, should translate into just as ambulant earnings for drivers.

- At the same time, Brian, you talked about market conditions correcting this issue. Is there anything that Uber and Lyft themselves can do to also help? Because, you know, you also have what is sort of a tricky relationship right now with the drivers.

Between this, also the unionization push that, reportedly, the rideshare companies are pushing back pretty forcefully against. And so it's sort of a delicate road for them right now in terms of that relationship.

BRIAN FITZGERALD: That's right, Julia. They-- you know, the companies have given benefits to drivers to get them back into the marketplace. They're finding-- they're getting back into the marketplace quicker than they assumed as we exited COVID. There's promotional activity that they can do to kind of stick and care at the marketplace. So that it clears efficiently.

In terms of the-- the Union efforts, look, I-- I think Prop 22 in California was a clear line in the sand. And when these companies survey their drivers, the majority of them say, I want the flexibility to run my own business. I don't need a safety net underneath me. I'm doing this to make extra scratch on the side. And I have my own safety net that I need.

If-- if I do need one, if I'm trying to be a professional driver, and that's all I'm doing, yes, I can pay funds into a system to make sure I have that safety net. But the thing that I appreciate most as a driver is flexibility to work where I want, when I want.

- Yeah, it makes sense. I want to pivot to another issue that we're watching closely, sort of to hop around, Brian. But this one caught our eye. This report that regulators in the EU and UK have opened antitrust probes into Google and into Meta over their ad deal that dates from 2018.

And this is just the latest of these types of probes. So can you help put us in perspective-- put it in perspective all of the probes that are out there? Many of them over in the European Union-- where this sort of ranks in importance?

BRIAN FITZGERALD: Yeah, it's a great question, Julie. This has to do with header bidding, which was-- which is a simplistic JavaScript, which was written into the headers of pages as they loaded, and then essentially kicked off a process where the publisher could-- right there on the phone or on the computer they could simultaneously offer up ad inventory.

It's a very simplistic process. It's extremely decentralized. And it's, quite frankly, not adequate for the complexities of today's real-time bidded, programmatic traded advertising, where you're-- you're seeing an ad impression and bidding on it with eight signals within 120 microseconds.

So it actually created problems. It required more local data, compute bandwidth, and that impacted load times and the battery life on your phone. So-- so what Google did was they responded with open bidding. And-- and Facebook was one of 24-- 25 different ad exchanges that are participating in Open Bidded-- they-- Open Bidding.

They took that header bidding solution, and they moved it into the cloud, where you can get true scale and efficiencies. So, you know, the problem with it to your point is-- you know, these are complex ad tech processes. And it's very hard to get that explained even to people in the trade, let alone a jury, I guess so.

Look. You're in the current environment. There's no guarantee that you won't be investigated. And that underscores some of the risk for bid tech in general right now. But-- but it was-- it was designed to be, and it was written up to be clearly antitrust compliant, publicly documented, pro-competitive, no harm to consumers.

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