Is Jeff Bezos Worth $131.4B? If Not, Should You Bet He Can Earn Back MacKenzie’s $66B?

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Photo by: Dennis Van Tine/STAR MAX/IPx 2019 3/4/18 Jeff Bezos and wife, MacKenzie Bezos at The 2018 Vanity Fair Oscar Party in Beverly Hills, CA.Dennis Van Tine/STAR MAX/IPx

Amazon CEO Jeff Bezos is the world’s richest person with a net worth of $131.4 billion, according to FORBES.

But he’s in the midst of a divorce — not to mention a related tussle with AMI, the parent company of the National Enquirer, which offered not to publish salacious photos of Bezos and his girlfriend if the Washington Post would stop investigating AMI’s Saudi Arabian ties.

Some think that what FORBES counts as Bezos’s net worth is in fact the community property of Bezos and his wife, MacKenzie.

Should you bet that Bezos could earn back the nearly $66 billion net worth that he could lose once the divorce is settled? Yes — but I think it will take him at least two years.

The key will be for Bezos to accelerate Amazon’s revenue growth rate by gaining double-digit market share in at least one industry with over $100 billion in revenues.

(I have no financial interest in Amazon securities).

Bezos and MacKenzie live in Washington state — “one of a few remaining community property states in the country, which means items considered marital property are generally split equally. According to Washington law, marital (or community) property is that which was acquired by either party during the course of the marriage, with some exceptions,” according to FindLaw.

I don’t know whether Bezos and MacKenzie executed a prenuptial agreement but if not, it’s entirely possible that one of the financial casualties of their divorce will be a roughly $66 billion drop in Bezos’s net worth.

With a 50-50 division of their  community property, half of his 16% stake in Amazon would go to MacKenzie who in 1994 famously drove her husband from New York to Seattle while he typed the Amazon business plan.

Amazon Stock Is Way Below Its Peak

While I am pretty sure he can get by without the money, it has probably not escaped Bezos’s attention that Amazon’s stock has lost 23% of its value since it peaked in August 2018 at $2,050 a share. That drop has cost Bezos about $36 billion.

That plunge was deepened by news that Amazon’s growth is slowing. On February 1, Amazon shares plunged 5.4% in the wake of a lower-than-expected growth forecast and a surge in expected operating expense to help Amazon build new businesses. To be sure, there was good news in Amazon’s report — its revenues and profits for the December-ending quarter were better than expected.

Earning Back MacKenzie’s $66 billion

This makes me think that Amazon stock would respond favorably to a big increase in investors’ expectations for how fast the company can grow.

How much faster? To put the problem in context, Amazon’s revenues have grown at a 23.8% average rate over the last five years. And last week Amazon guided investors to expect much slower revenue growth — around 14% in the current quarter.

My guess is that if Amazon can accelerate its growth rate to 30% and keep it there for a few years, he could earn back the $66 billion that his divorce settlement transfers to MacKenzie.

For his resulting 8% stake to be worth $131 billion, Amazon shares would need to rise 106% from the $1,588 they closed at on February 8 to $3,271.

Up until the tech stock meltdown that began last October, Amazon stock was doubling roughly every two years so this is not out of the question.

Repealing the law of large numbers

All companies, whether giants like Amazon or startups, must invest in new growth opportunities. That’s because every product goes through life cycles. Initially sales are slow, then product sales spike rapidly, and ultimately slow down and decline.

In order for companies to keep growing, they must invest in new growth opportunities that are on the upswing before the original ones mature.

Investors have forgiven Amazon’s limited profitability because it was good at tapping into new growth opportunities.

To grow at 30% in 2019, Amazon– with roughly $220 billion in revenue over the last 12 months — will need to add about $66 billion to its revenues.

That’s roughly as much revenue as PepsiCo generated last year. Doing so would demonstrate that Amazon has repealed the law of large numbers — as a company gets big, it becomes impossible to sustain high growth.

Here are two things Amazon must do to get there.

1. Target A New Huge Market

Companies the size of Amazon must target huge markets that are growing rapidly. For example, Amazon is currently going after the $505 billion U.S. e-commerce market, the $176 billion 2018 cloud services market, and the $100 billion market for digital advertising. (Those statistics are from StatistaGartner, and the IAB Internet Advertising Revenue report, respectively.)

My prediction: Given Amazon’s dominant market share in e-commerce and cloud services, it will probably keep growing — but not enough to boost its top-line growth rate. It won’t gain enough market share in digital advertising to make a difference, especially because Facebook and Google are such effective competitors.

2. Gain Double-Digit Market Share

Merely saying you want to tap into a new market is not enough to gain market share. Instead, you need to offer customers a better deal. You need to learn how they compare competing vendors and make yourself seem like the most attractive option.

Amazon has done that brilliantly in many industries. As I wrote in my book Disciplined Growth Strategies, Amazon’s lower prices, wider selection, and faster delivery have helped it gain share in consumer retailing. It now controls 49.1% of all e-commerce, according to eMarketer.

It’s dominating another market, cloud services, where AWS has 40% of all industry revenue, according to Synergy Research. What’s more, Amazon — which lags Facebook and Google in digital advertising — has been proving itself an able insurgent with 4.1% share, according to eMarketer.

But all this wouldn’t be enough to boost Amazon’s growth rate to 30%. For that, it needs to gain a big share of
another huge market. And in order to capture that share, it might need to develop new capabilities.

A case in point is the $453 billion prescription drug business which is growing at a 2.4% rate, according to IBISWorld. Will its $1 billion acquisition of PillPack and other moves be enough for Amazon to take that market share from Walgreens (33% share) and CVS (29%)? Or will Amazon need to develop new skills to win there?

To regain the lost half of his net worth, Bezos will need to answer such questions in the affirmative. The way he responds to this challenge could be a model for all companies — large and small.

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