Amazon.com, Inc. (AMZN): Is Jeff Bezos the Greatest CEO Alive?

Page 1 of 2

In the January/February issue of the Harvard Business Review, three scholars from INSEAD in France compiled a ranking of the 100 best CEOs in the world who took office between 1995 and 2010. While Steve Jobs of Apple Inc. (NASDAQ:AAPL) unsurprisingly garnered the top spot, Amazon.com, Inc. (NASDAQ:AMZN) founder and CEO Jeff Bezos was ranked No. 2. Due to Jobs’ untimely passing in 2011, that makes Bezos the greatest CEO alive, according to the HBR study.

Amazon.com, Inc. (NASDAQ:AMZN)There is no doubt that Jeff Bezos belongs on a list of the top 100 CEOs of our time. In less than two decades, he built Amazon from nothing into one of the largest retailers in the world, and has also branched out into consumer electronics (particularly with the Kindle Fire) and cloud computing (through Amazon Web Services). On the other hand, the HBR study focused on stock performance, which is at best an imperfect measure of CEO performance, and may overstate Bezos’ accomplishments. Jeff Bezos has done a great job of growing Amazon’s revenue and share price, but not its profit or cash flow. Amazon’s high share price indicates that investors believe the company’s strategy will eventually lead to high profits, but there is no guarantee that Amazon will follow through. As a result, it is too early to put Bezos on par with Steve Jobs.

The ranking system
The authors’ goal was to create an objective measure of long-term CEO performance. To judge CEO performance, the authors measured total shareholder returns and increase in market capitalization over each CEO’s tenure. The authors rejected subjective measures of performance, as well as measures that were not comparable across industry groups: “Other metrics, such as sales, profitability, and innovation rates, are useful, too, but they differ by industry, which makes comparisons difficult.”

Amazon’s current market capitalization of approximately $120 billion makes a compelling case for putting Bezos at the top of the list of best CEOs. However, in an interview with HBR editor Adi Ignatius, Bezos himself cites legendary investor Ben Graham’s statement: “In the short term, the stock market is a voting machine. In the long term, it’s a weighing machine.” If we look back just a little more than four years, Amazon’s market capitalization was less than $25 billion.

AMZN Market Cap Chart

Amazon Market Cap, data by YCharts.

If the study had been performed four years earlier, Bezos would not have fared nearly as well. This merely highlights that stock performance itself is an inherently subjective measure in the short term. To better evaluate Bezos’ performance, it is critical to look at trends in cash flow and profitability, as well as revenue, because Amazon’s stock price will be unsustainable without growth in these key metrics.

Amazon’s growth trend
In the HBR interview, Bezos states that Amazon does not try to optimize its profit margin, but instead seeks to maximize long-term free cash flow. Amazon saw consistent growth in this metric for most of the last decade, but free cash flow has dropped precipitously over the past few years after peaking just below $3 billion in 2009.

AMZN Free Cash Flow TTM Chart

Amazon TTM Free Cash Flow, data by YCharts.

The culprit has been a sharp increase in capital investment. Operating cash flow has risen each year since 2009, albeit slowly, growing from $3.29 billion to $4.18 billion over that time (a CAGR of 8.3%). However, capex has skyrocketed from $373 million in 2009 to $979 million in 2010, $1.81 billion in 2011, and $3.79 billion in 2012.

Page 1 of 2

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Click here to Read Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 74 percentage points in 2.5 years. Our beta is only 1.2 (download a FREE newsletter and see the details inside)

Lists

Best Selling Magazines in the World

Shortest People in History

The Most Celebrated Holidays in the World

Most Expensive Handbag Brands in the World

Top Selling Comic Book Issues of this Century

The Most Powerful Women in Politics

Best Paid DJs

Most Rebellious Female Artists

Best Paid TV Actresses of 2014

Best Paid Actors of 2014

Most Expensive Horses in the World

Tallest People Ever

Most Encouraging Feminist Celebrities

Best Paid Supermodels of 2014

Top 10 Suburbs for Retirement in 2015

10 Wealthiest Cities in America

Top 10 TED Talks for Entrepreneurs

Best TED Talks on Education

25 Most Dangerous Places to Live in America

Top 10 Ski Resorts in the United States – 2014 List

Top 10 Most Remote Places in the World

Most Visited Museums in the United States

Wealthiest Photographers in the World

Most Famous Gay Athletes

The World’s Most Famous Circuses

Best Hair Stylists

Most Popular NASCAR Drivers

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!