The business school prof who predicted Amazon would buy Whole Foods now says an AWS spinoff is inevitable - and the standalone company could be worth $600B
- Amazon will split off Amazon Web Services as a separate company, marketing professor Scott Galloway said at Business Insider's IGNITION conference on Monday.
- By doing so, Amazon will unlock at least $70 billion in shareholder value, he said.
- But the move could also help appease regulators looking to rein in the big-tech companies, he said.
Amazon will spin off its cloud business in the near future, unlocking tens of millions - perhaps even hundreds of millions - of dollars in value, marketing guru Scott Galloway said Monday at Business Insider's IGNITION conference.
The move will also help the company placate regulators who are starting to scrutinize its anti-competitive practices, said Galloway, a professor at New York University's Stern School of Business.
After the e-commerce giant spins it off, Amazon Web Services "will be one of 10 most valuable companies in the world," he said. He continued: "The question then becomes, what happens to the old [retail-side of] Amazon."
Amazon will decide to split off AWS, because it makes a lot of sense, and market forces will dictate it, Galloway said. Cloud computing is one of the most important trends taking place in the technology industry, but there's no simple way for investors to profit off it, he said. The three biggest cloud services - AWS, Microsoft's Azure, and Google Cloud - are all part of much bigger companies whose results only partially reflect their cloud businesses.
"There's no pure way to play" the cloud trend, Galloway said.
As the biggest of the bunch, AWS would be a natural to become its own standalone business, he said. And it could be a huge windfall for Amazon shareholders. Depending on how it would be valued and the multiple to earnings that the market would assign to it, AWS by itself could be see a valuation of anywhere from $70 billion to $600 billion, he said.
Better yet for shareholders, the combined value of a retail-focused Amazon and a newly separate AWS would likely exceed Amazon's current value, he said.
Spinoffs are good for shareholders
That's been the lesson from other spinoffs in the past, he said. Amazon's current market capitalization is around $864 billion.
Right now, AWS's is being held down in part by the fact that the profits it generates subsidize other parts of Amazon's business, he said. The company's international business chronically posts losses on its operations, and its North American business generally posts only narrow operating profits.
But Amazon has another incentive to spin off AWS - regulatory scrutiny. Policymakers around the world have been increasingly focusing on the power and anti-competitive practices of the big tech companies. There are growing calls to weaken those companies and introduce more competition by breaking them up.
Spinning off AWS could allow Amazon to get ahead of the regulators and split the company on its own terms, Galloway suggested. But it likely wouldn't address fully the anti-competitive concerns regarding Amazon. Sen. Elizabeth Warren, D-Massachusetts, and others have taken particular aim at the company's practice of both selling products directly to customers and providing a platform for other retailers to sell products online. Amazon uses data generated from those third-party sales to give its products a leg up on those companies, critics charge.
Regulators "are worried about an invasive species called Amazon," Galloway said.
Galloway has a track record of successful forecasts concerning Amazon. He predicted which cities it would choose for its second headquarters and also that it would buy Whole Foods.
During his talk, Galloway also focused on Facebook, arguing that the company should similarly spin off Instagram, saying it could be worth $100 billion to $470 billion as a standalone company. He also called on the company's board to fire CEO Mark Zuckerberg and Chief Operating Officer Sheryl Sandberg.
- Read more from BI's IGNITION 2018 conference:
- Facebook's board needs to get a spine and fire Mark Zuckerberg, marketing guru Scott Galloway said
- The man who predicted that Amazon would buy Whole Foods now expects the tech giant will soon be the world's fastest-growing healthcare company
- IAC's CEO says that understanding consumer-focused internet brands is keeping the company's stock flying high
- The creator of the 'Bloomberg for the trucking industry' reveals why being based in a city in Tennessee played such a crucial role in his company's success