What We Learned From Jeff Bezos’ Final Annual Amazon Shareholder Letter

Last week Jeff Bezos published what will be his final annual shareholder letter as the CEO of Amazon. If you are interested we recommend reading his letter in full. It gives a deep dive into the current state of Amazon, as well as a trip down memory lane and also a look in to the future.

Perhaps most interesting however is the information Jeff gives as regards to the numbers at Amazon. Traditionally Amazon is very private about the state of their business when it comes to certain figures. So in this article we are highlighting some of the more interesting things we learned from Jeff’s final shareholder letter.

Amazon By The Numbers

In Jeff’s first shareholder letter in 1997 he announced that Amazon had 614 employees, 1.5 Million customer accounts and their newly listed stock price of $1.50.

Fast forward to 2021 and Amazon now has 1.3 Million employees globally, has over 200 Million Amazon Prime Accounts and a stock price of $3399.44 (At the time of publishing). This stock price has led to the creation of $1.6 Trillion worth of wealth for shareholders.

As a marketplace Amazon now boasts 1.9 Million SME’s that sell on the Amazon website making up close to 60% of Amazon’s retail sales. On top of that there are now over 100 Million smart home devices connected to Alexa.

What Value Has Amazon Created?

In his letter Jeff does a good job of breaking down the value and wealth attributed to Amazon and what that means for the different cogs in the Amazon machine.

Amazon’s net income for 2020 was $21.3 Billion. Amazon paid its employees $80 Billion in 2020 including $11 Billion worth of benefits and payroll taxes totaling $91 Billion all together.

As for third party sellers it would be impossible for Amazon to know the exact profit for the third parties. Using their own dedicated internal team they estimate profits for third party sellers to be between $25 Billion – $39 Billion.

Perhaps my favorite part of his letter is where Bezos breaks down the value to customers and of course this equates to time.

“Customers complete 28% of purchases on Amazon in three minutes or less, and half of all purchases are finished in less than 15 minutes. Compare that to the typical shopping trip to a physical store – driving, parking, searching store aisles, waiting in the checkout line, finding your car, and driving home. Research suggests the typical physical store trip takes about an hour. If you assume that a typical Amazon purchase takes 15 minutes and that it saves you a couple of trips to a physical store a week, that’s more than 75 hours a year saved. That’s important. We’re all busy in the early 21^st century.

So that we can get a dollar figure, let’s value the time savings at $10 per hour, which is conservative. Seventy-five hours multiplied by $10 an hour and subtracting the cost of Prime gives you value creation for each Prime member of about $630. We have 200 million Prime members, for a total in 2020 of $126 billion of value creation.”

Jeff Bezos, Amazon Annual Shareholder Letter, 2021

When you add in AWS to the consumer total. it allows Amazon to fully break down how much total value creation, as rudimentary as it may seem, was made in 2020.

Summarizing:
Shareholders      $21B
Employees          $91B
3P Sellers            $25B
Customers          $164B
Total                    $301B

It Remains Day 1 For Amazon

Throughout the rest of his letter, Jeff touches on a number of areas, including the Amazon workforce, Climate Change, innovation and much more. You can read the full letter here.

He shares a fascinating metaphore which can be summarized by ‘Differentiation is Survival, whilst the World will try and make you typical’.

As someone who has been following and involved with Amazon in one way or another for the past 11+ years, to me it seems like that very notion is what is key to their success. Even at the scale they are, they still think like that small business they once were in Mr & Mrs Bezos’ garage. They ask tough questions and are always striving for innovation.

Many people are always confused by Jeff’s insistence on it being Day 1. Let me share with you why this is. Here is an excerpt from Bezos’ shareholder letter in 2017.

“Jeff, what does Day 2 look like?”

That’s a question I just got at our most recent all-hands meeting. I’ve been reminding people that it’s Day 1 for a couple of decades. I work in an Amazon building named Day 1, and when I moved buildings, I took the name with me. I spend time thinking about this topic.

“Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”

To be sure, this kind of decline would happen in extreme slow motion. An established company might harvest Day 2 for decades, but the final result would still come. I’m interested in the question, how do you fend off Day 2? What are the techniques and tactics? How do you keep the vitality of Day 1, even inside a large organization?

Such a question can’t have a simple answer. There will be many elements, multiple paths, and many traps. I don’t know the whole answer, but I may know bits of it. Here’s a starter pack of essentials for Day 1 defense: customer obsession, a skeptical view of proxies, the eager adoption of external trends, and high-velocity decision making.”

Time will tell whether Andy Jassy will be able to carry the torch when Jeff leaves Amazon as CEO later this year, and prolong Day 1 even longer.

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