Jeff Bezos Is Selling $4 Billion of His Amazon Stock. Should You Follow Suit?
Key Points
SEC filings revealed Bezos' intent to sell up to 15 million shares of the company he founded.
Amazon's second-quarter results showed tremendous progress for both retail and cloud computing.
Capital investments are weighing heavily on free cash flow.
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Jeff Bezos is dumping shares of Amazon (NASDAQ: AMZN), as it trades around its all-time high. The company's founder and executive chairman filed documents showing he sold 1.2 million shares of the stock last week, after another filing indicated he could sell up to 15 million shares in total. If he sold them at the market price at the time of filing, the total would exceed $4 billion.
That's a lot of cash, even for someone as wealthy as Bezos. Should Amazon shareholders consider lightening up their exposure to Amazon as well? Here's what investors need to know.
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Jeff Bezos, Amazon Executive Chairman. Image source: Amazon.
Why is Bezos selling Amazon stock?
Bezos' stock sale is part of a Rule 10b5-1 trading plan established last year. Such plans are prearranged well ahead of stock sales to prevent insiders from trading on nonpublic information. In other words, Bezos isn't seeing any signs that the stock is too expensive or that a sudden change in Amazon's fortunes is on the horizon.
In fact, Amazon appears to have a long runway ahead of it. Its retail operations are firing on all cylinders, with revenue climbing about 16% year over year across its North American and International segment last quarter. That was helped by shifting Prime Day from the third quarter to the second quarter, but still an impressive result. The segment's operating margin continues to expand, driven by strong advertising sales and Prime membership growth.
The core of Amazon, though, has become its cloud computing unit, Amazon Web Services. The company is spending tens of billions of dollars each quarter to build additional compute capacity, which has pushed its total free cash flow into negative territory over the past 12 months. While some investors have balked at all that spending, Amazon's results and outlook suggest it's a solid investment.
AWS revenue accelerated for the fifth straight quarter, climbing 37% year over year. What's more, operating margin expanded to 39.4% in the most recent quarter. Both trends could continue.
Amazon's rapid increase in capital deployment should enable it to recognize its growing backlog more quickly in the coming quarters. Backlog reached $496 billion as of the end of the second quarter. Regarding margin, it should see expansion as more AI workloads move to Amazon's custom silicon, Trainium and Graviton, which produce better margins for Amazon and better price performance for its customers compared to traditional GPUs.
Amazon CEO Andy Jassy sees tremendous long-term potential for AWS. His comments during Amazon's second-quarter earnings call suggested it could become a $1 trillion annual revenue business. If it achieves just half of that, Amazon will generate hundreds of billions in free cash flow each year, sending the value of its shares significantly higher over time.
There's a reason Bezos still holds 880 million shares of Amazon, comprising the vast majority of his net worth. The outlook remains bright for the company.
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Adam Levy has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
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