Founder, Chairman, CEO and President of Amazon Jeff Bezos gives a thumbs up as he speaks during an event about Blue Origin’s space exploration plans in Washington, U.S., May 9, 2019.
Clodagh Kilcoyne | Reuters
At an all-hands staff meeting in March, Amazon CEO Jeff Bezos told employees that he’s fascinated by the recent developments in the auto industry, adding that it was one of the main reasons why Amazon led a $700 million investment in the electric vehicle startup Rivian in February.
“If you think about the auto industry right now, there’s so many things going on with Uber-ization, electrification, the connected car — so it’s a fascinating industry,” Bezos said according to a recording of the meeting CNBC has heard. “It’s going to be something very interesting to watch and participate in, and I’m very excited about that whole industry.”
Bezos’s comments give a rare glimpse into his interest in the auto industry, which Amazon entered in February through its investments in Rivian and another self-driving tech start-up, Aurora. Investing in autonomous technology could eventually help Amazon offer faster and cheaper delivery, as well as automation in other areas, like its cashier-free grocery stores.
Rivian is best known for its electric trucks and has raised $1.4 billion in funding so far, including $500 million from Ford in April. Aurora, a self-driving tech startup run by former Uber, Google, and Tesla executives, is now reportedly worth over $2 billion following its $530 million funding round in February.
Following those two investments, Amazon’s ownership stake in private companies shot up to almost $1.4 billion last quarter, marking the first time it crossed the $1 billion mark since disclosing that figure in 2015. That’s up by almost $1 billion from the previous quarter, and roughly five times more than what it owned just two years ago, filings show.
Amazon doesn’t break out individual investment amounts, but discloses the total value of its equity and equity warrant investments in both public and private companies.
Amazon did not respond to a request for comment.
Investing in autonomous companies gives Amazon “greater insights into cutting edge technology” that could directly help its core e-commerce business, according to Gene Munster, an analyst at Loup Ventures. The investment in electric and self-driving cars, for example, could give insights into improving Amazon’s last mile logistics strategy and potentially reduce its overall shipping costs, he said. Amazon’s shipping cost jumped 21% to $7.3 billion last quarter.
“It’s a form of outsourced R&D,” Munster said.
There are many ways that autonomous technology could help Amazon. In January, for example, Amazon rolled out a new self-delivery robot called Scout, and it has also partnered with self-driving truck startup Embark to handle parts of its cargo shipments. When it first launched the Amazon Go cashierless stores in 2016, Amazon said it used the same technology found in self-driving cars.
More important, the investments signify Amazon’s growing appetite for spending on other companies, both public and private, as the company faces slowing growth despite hitting record profits and cash flow.
In the first quarter, Amazon had $4.4 billion in operating profit and a cash balance of $47 billion, both record-highs. But its quarterly revenue growth was just 16.9%, the slowest since 2015.
Meanwhile, filings show that Amazon spent a total of $1.2 billion in cash payments related to “acquisition and other investment activity” in the first quarter, a record amount for a single quarter excluding the third quarter of 2017, when it spent $13.7 billion to buy Whole Foods. During the quarter, Amazon bought Eero for roughly $100 million and CloudEndure for $250 million, while its two largest investments were in Rivian and Aurora, according to Pitchbook. Amazon continues to be an aggressive investor this quarter, having led the $575 million funding round in Deliveroo last week.
While that’s a tiny amount relative to Amazon’s total revenue ($232 billion in 2018) or assets ($178 billion as of the first quarter), it’s still a notable shift from its reputation for being a low-key corporate investor, according to Daniel Aobdia, an accounting professor at Northwestern University.
“Amazon is stepping up its investment in start-ups, and this has been made easier because of the increased cash flows from operations,” said Daniel Aobdia, an accounting professor at Northwestern University. “This is an interesting development, in line with Amazon being interested in expanding its businesses in several different directions.”
During the March staff meeting, Bezos tried to temper expectations by saying that he doesn’t view the Rivian investment to turn into Amazon’s next growth driver yet. He said it’s still just a minority investment and electric cars wouldn’t become the company’s next major “pillar” anytime soon.
But he went on to highlight one other reason he was drawn to the Rivian investment: its founder and CEO R.J. Scaringe. Calling him “incredible,” Bezos touted Scaringe’s decade long experience in the auto space, adding that his personality perfectly fits in with Amazon’s culture and values.
“As with most of our major investments, and acquisitions, we’re always looking for mission-driven entrepreneurs — missionaries instead of mercenaries,” Bezos said. “And the guy who leads the company, a guy named R.J., is one of the most missionary entrepreneurs I’ve ever met.”