Why Amazon.com Has Lost Its Way

As share prices slide, tech investors are getting restless. Now shareholders are mobilizing and pushing back against management.

Amazon.com (AMZN) shares are down in 2022 by a whopping 37.5%. At the annual general meeting two weeks ago shareholders plan to push back on executive pay, unionization and tax policies.

Buckle up, this is another headwind for the e-commerce giant.

Andrew Jassy, chief executive officer, has had a tough start to his tenure. Shares are down 43.4% since July 5 when he took over for the founder Jeff Bezos. As the former head of Amazon Web Services, institutional investors believed Jassy would strengthen profitability and leave the overall business less reliant on e-commerce. Unfortunately, he has spent almost a year mired in the morass of warehouse working conditions, unionization and overexpansion. It’s a mess.

Fifteen shareholder proposals are on the docket for Wednesday’s annual meeting, the most since 2010, according to a report from the Financial Times. During that time no proposal has garnered enough support to move forward. Then again, that was a different era, when the share price was zooming higher.

Bezos founded the online giant in a suburban Seattle garage. He quickly grew the business into an empire by eschewing short term thinking.

Amazon.com became an intricate mix of businesses, all interdependent. One of these, AWS, started as the cloud-based data storage and compute division for Amazon.com. Today the company claims 90% of the Fortune 100 use its services. It has reported annual sales run rate is $74 billion. About a third of that number trickles to the bottom line as profits. And despite its size, the business continues to grow at better than 30% per year.

Unfortunately, the rest of the business is sputtering.

Jassy spent lavishly in 2021 to take-on new warehouse capacity to meet the demand during the pandemic. He also raised wages and ramped up investment in safety protocols to keep warehouse workers healthy.

Chris Smalls, a labor union activist, in March successfully organized a Staten Island, N.Y. warehouse. On Wednesday Smalls will propose that Amazon.com prepare a report detailing policies on freedom of association. The inference is that report will become a roadmap for further unionization.

Another proposal will ask for an independent audit of warehouse working conditions. And another will ask Amazon.com to detail where and how it pays taxes worldwide.

The Institutional Shareholder Services, an influential advisory group for hedge funds, mutual funds and pension funds is objecting to Jassy’s $214 million pay package, and the contracts of other senior executives.

Shareholders have every right to question executives. Shareholders own the business, after all. And Jassy certainly has made some tactical errors managing the ecommerce part of Amazon.com during the pandemic. Growing warehouse capacity when demand was artificially high is now biting into operational efficiency. Bloomberg notes that excess capacity is going to be a headwind until that space can be sublet.

The problem for shareholders in the near term is most of the 15 shareholder proposals being tabled on Wednesday will hurt future profitability, even if they don’t win enough votes to move forward.

In the past Amazon.com has met disgruntled shareholders halfway. Previous unsuccessful proposals for environmental impact, and racial equality audits have led to future detailed reports. If Amazon.com moves forward in any way with reports that would make it easier for employees to unionize it will negatively impact the perceived value of the ecommerce business.

Amazon.com shareholders have had a rough year. Even with the selloff in 2022, at $2,082 shares still trade at 38.6x forward earnings. The price-to-sales is 2.2x compared to 0.6x for Walmart (WMT), 0.64 for Target (TGT), and 0.32 for Best Buy (BBY).

I’m intrigued by the longer-term potential of Amazon.com, especially given the growth prospects for AWS. However investors should avoid shares until they stabilize and begin to move higher again.