In this test, I used the operating cash flow as the measure of profit. This variation of the $1 test calculates how many dollars of operating cash flow has been generated per $1 of R&D expenditure. The details are provided in my other articles: This variation applies the $1 test on its R&D yield instead of MC. For tech firms, I always like to run another $1 test, a variation of the original Buffett test on its CEO. More importantly, as the leader of a tech giant, I view his strategy to shift focus toward AWS and slowing down retail expansion as a key strategy. And furthermore, I see he is making the right moves to deal with these issues. Just saying that these problems are not his own making. In the end, a CEO's job is to deal with every and any sort of problem. Not saying that macroscopic forces are not his problems. I view the issues that caused Andy Jassy failing scorecard to be largely macroscopic market forces (like record inflation and global supply chain disruptions) beyond anyone's control. Source: Author based on Seeking Alpha data The scorecard Jassy should have received Source: Author based on Seeking Alpha data Such a discrepancy suggests an overaction in my view. Next, I will explain why I see a discrepancy between Jassy's scorecard from the market versus the scorecard that he should receive. As a result, Jassy's score is in the negatives, a stark contrast to Bezos' flying colors. And it has lost almost ½ of its market cap since Jassy took over. AMZN's market cap was near a peak during the transition. Then Jassy took over in 2021, the most unfortunate time (at least for the sake of the $1 test scorecard) as you can see from the following chart. Thus, as a result, the plot actually included data all the way back to 2011. Note that the plot started in 2015 because I took a five-year running average, a typical treatment in Buffett's $1 test. As seen from the chart, AMZN has been creating an average of $19.28 of MC gain per $1 of earnings retained during the last 10 years of Bezos' leadership between 20. And the chart below shows the scorecards for Bezos and Jassy. By this test, a CEO should at least grow a company's market cap ("MC") by at least $1 for every dollar of retained earnings. Scorecards for Bezos and Jassy on Buffett's $1 testīuffett's $1 test is a subjective yardstick to measure CEO performance. Especially, he has been emphasizing R&D efforts and has been showing excellent R&D yield since he took over, as to be detailed next. Overall, I see these moves as the right ones for AMZN to deal with both the immediate inflationary pressure and also to maintain high growth rates in emerging areas such as AWS and healthcare. Since he took over, Amazon also announced the acquisition of One Medical to accelerate its presence in the healthcare industry. He is finding ways to slash costs and recently shut down its subsidiary (which sold fabrics for almost 30 years). After all, Andy Jassy was the boss of the cloud-computing unit before assuming the CEO role. To name a few of his key strategic moves, he is shifting capital investment toward AWS, its cloud computing unit, and slowing down retail expansion plans. He's an effective CEO and has been making the right calls. And based on such examination, I will argue that Jassy's miserable scorecard is largely caused by macroscopic forces. Therefore, the purpose of this article is to examine Jassy's scorecard more closely. While Jassy's scorecard is in the negatives so far. As to be determined in a later section, Bezos delivered an average of $19.28 in market cap gain in the last 10 years of his regain for every one dollar of retained earnings, far exceeding the threshed of $1 that Buffett deemed as a passing grade. As of this writing, its market cap sits at $955 billion, almost only half of the peak level compared to the time of the transition.Īs a result, by Buffett's $1 test, Bezos boasts a spectacular scorecard. Since Andy Jassy took over, AMZN's market valuation plummeted together with the rest of the market. Amazon's market cap was near a peak level when Bezos stepped, hovering around $1.7 trillion. From hindsight, the timing of the transition set Jessy up in a very tough spot. Jeff Bezos officially stepped down as the CEO of Amazon ( NASDAQ: AMZN) CEO in July 2021 and passed the baton to Andy Jessy.
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