Actionable news
All posts from Actionable news

Jeff Bezos' Latest 'Bright Idea' Worth $55 Million


Amazon's newest venture will not end well.

Amazon lacks the necessary experience to deal with hard assets.

Variable expenses will become fixed costs.

The new venture will not be very profitable, as demonstrated by the company with whom Amazon partnered.

There is a difference between Amazon's low profitability and the low profitability of the new venture.

It all began in January, when Amazon (NASDAQ: AMZN) was rumored to have reached an agreement to acquire a French delivery company (the deal never closed). Later in March, the company announced that it was going to lease 20 aircraft from Boeing (NYSE:BA) to really take charge of its own logistics network. Previously, Amazon shipped through various carriers such as UPS (NYSE:UPS) and FedEx (NYSE:FDX). Let's review Amazon's newest deal.

New Deal

When the company announced its partnership with Boeing, I didn't think too much of it. "Perhaps it was just another one of Jeff Bezos' new ventures," I thought. However, now it's getting serious. The company is going full-steam ahead with its own logistics business. On Thursday, the aircraft leasing company Atlas Air Worldwide Holdings (NASDAQ: AAWW) announced that the company established a partnership with Amazon to support the growth of Prime. Amazon will lease aircraft on long-term contracts ranging from 7 to 10 years. Furthermore, Amazon has also been granted warrants to acquire 20% of AAWW's common stock.

Why was this a terrible move? After all, it would appear that Amazon has already made money on the warrants, as AAWW closed at $48.66/share on Thursday, well above the strike of $37.50. Disregarding the vesting period, Amazon just made $55 million. So what's wrong?

Uncharted Territory

There is nothing wrong in trying different things (anyone remember the Fire Phone?). In fact, it is what tech companies should be doing. Without innovation, technology...