Will Jeff Bezos selling $5bn impact the Amazon share price?

Senior management selling off shares can be a red flag for investors, so should we be watching the Amazon share price as Jeff Bezos sells more?

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Amazon (NASDAQ:AMZN) founder Jeff Bezos recently announced plans to sell nearly $5bn worth of shares, and that has caught the attention of investors worldwide. This move comes at a time when the Amazon share price has reached record highs, prompting questions about the company’s future prospects and whether this insider selling should be a cause for concern.

Recent performance

Before delving into the implications of Bezos’s stock sale, it’s important to consider Amazon’s recent performance. The share price recently hit an all-time high of $200.43. The shares have surged over 30% so far in 2024, significantly outpacing the broader market.

The company reported strong first-quarter results earlier this year, buoyed by its ventures into artificial intelligence. With a market capitalisation of $2.1trn, it remains one of the world’s most valuable companies.

The Bezos sale

Jeff Bezos plans to sell approximately 25m Amazon shares, worth nearly $5bn at current prices. This follows a larger $8.5bn stock sale in February. After this proposed sale, Bezos would still own about 912m shares, representing a healthy 8.8% stake in the company.

It’s worth noting that large insider sales by founders of tech giants are not uncommon and often occur for various reasons, including diversification of personal wealth, funding other ventures, or philanthropic efforts.

While big insider sales can sometimes raise red flags, there are several factors suggesting that the Bezos stock sale may not be a cause for immediate concern. The financials remain robust, with the company reporting $37.68bn in earnings over the trailing 12 months and a healthy profit margin of 6.38%. Analysts project earnings to grow by 21.37% a year, indicating continued optimism about the company’s future. Bezos may be seeking to diversify his personal portfolio or fund other ventures, such as his space company Blue Origin. The proposed sale represents only a small portion of Bezos’s overall Amazon holdings.

What’s next?

Some analysts remain bullish on Amazon’s prospects. For instance, one equity analyst suggests a fair value of $225 per share, implying that the stock may still be undervalued by 11.1%. A discounted cash flow (DCF) calculation suggests there might be as much as 41% growth ahead before fair value is reached, although this is never guaranteed.

However, other analysts caution about potential challenges ahead, such as increased capital intensity and trade challenges. For me, I’d worry more that the valuation is already pretty high based on the uncertainty of the future. With AI and cloud computing now making up a huge part of the company’s revenue, other providers in the space could easily grab some of this market. Global companies such as Alibaba or JD.com, with far lower price-to-earnings ratios (16 times and 12 times, respectively) may look more appealing to investors.

Nothing to worry about

However, while the $5bn stock sale is certainly noteworthy, it doesn’t necessarily signal a lack of confidence in Amazon’s future. The company’s strong fundamentals, market position, and growth prospects suggest that it remains well-positioned for continued success. To me, Jeff Bezos seems to be looking to new opportunities, and selling off some of his holdings is just the means to do so. I still feel there is a lot of growth ahead for the Amazon share price, so I wouldn’t let this news change my strategy, whether I was an investor or not.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Gordon Best has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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