How to Break Amazon Into Pieces

The Federal Trade Commission is about to file an antitrust lawsuit against Amazon, according to The Wall Street Journal. According to the report, the government says Amazon treats its own products better than those sold by other parties. The charges may also show that it treats outside partners poorly. Big companies have been broken up in the past. AT&T is the most recent example, in 1982. Amazon may be the next American corporation to which that happens. (These are 17 awful investments made by Amazon.)

Amazon has two major divisions, one of which feeds the other financially. The separation of these would be logical. The first is the massive e-commerce operation. In the most recent quarter, Amazon’s North America and international e-commerce operations had a combined revenue of $112 billion and an operating income of $2.2 billion. For years, it has taken market share from America’s retailers, both their online operations and brick-and-mortar. However, its margins remain very small.

Amazon Web Services is arguably Amazon’s most successful business. The largest cloud computing operation in the world, it primarily competes with Microsoft and Google. It is growing rapidly. Its revenue in the most recent quarter rose 12% to $21.4 billion. Its operating income was $5.14 billion.

The subsequent division would happen within e-commerce. Amazon Prime Video competes with Netflix, Disney, Hulu and other streaming services. Prime Video has over 200 million subscribers. That makes it slightly smaller than Netflix but larger than the others. Amazon does not break out its revenue. The service is often part of Amazon Prime, which Amazon offers to build its e-commerce business. The spin-off of video would further weaken Amazon’s dominant position in the e-commerce market.

The final part of Amazon that would need to be separated into pieces is its cash, cash equivalents and marketable securities hoard. The total of these is about $50 billion. There is no simple calculator for distributing this among the new companies.

In a breakup, each Amazon shareholder would get shares in the three new companies. This would allow them to pick which of the three are winners and which are not.

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