Amazon CEO is the ‘outside insider’ that can push the company to new heights, professor says

IMD Business School LEGO Professor of Management & Innovation Howard Yu joins Yahoo Finance Live to discuss fourth quarter earnings for Amazon, Big Tech leadership, and the outlook for tech innovation.

Video Transcript

JULIE HYMAN: That's the other big story today. We can't forget about it. Even though jobs is a huge story, amazon is as well. The stock is up about 10 and 1/2% here this morning, a day after Amazon had its biggest drop since March of 2020.

That's after reported fourth quarter sales rose by 9.4%, a huge beat for earnings per share. But that was mostly because of a one-time gain because of its Rivian investment. And the company forecasting revenue in the current quarter actually a little bit light of estimates. But that is not slowing down the gain that we are seeing in the shares.

Let's talk more about the Amazon and broader tech dynamic. Howard you is joining us. He is the IMD Business School LEGO Professor of Management and innovation. And Howard, it's great to see you. When you look at those Amazon numbers, particularly on the back of Meta and some of the other tech numbers we've gotten-- Alphabet, for example-- how does Amazon fit into the tech nar-- the tech story this week?

HOWARD YU: Right, I mean, the tech sector this week has been crazy. But it also illustrates or highlights the importance, even for tech giant, it's so important to become future ready. So what we're seeing is, of course, Amazon have this one-time boost because of the IPO Rivian.

But it's also the revenue growth because of the pandemic. And on the back is the continuous growth of AWS, and also the pricing hike in terms of Prime membership. I think it's all these four factors really turned the market to be bullish.

But look, again, earning is the ultimate lagging indicator for tech giants. The moment they stop innovating, the moment they start branching out to new businesses, then ultimately they would be cornered. And there's no future growth. And this is where the Meta story beginning to emerge.

So I think from Amazon's perspective, they are looking left and right, looking at what happened to Netflix, what happened to Meta, and so that in the future going forward, it's not just about margin growth. But more importantly is to branch out to new services, new business model. This is how Amazon has been on the rise for a long time.

BRIAN SOZZI: Howard, out of all the tech giants you just mentioned, and given we've gotten a lot of negative and some positive stock reactions here, a lot of earnings calls, a lot of earnings releases, which tech giant do you see is the most innovative at this point in its lifecycle?

HOWARD YU: Right, so at IMD, we actually take a very balanced measure across companies, whether they're innovative or not. We're looking at the cash position, like Julia had mentioned earlier. It's so important that companies actually are in a good standing in terms of financial position so that they can invest in the future.

But you also need to look at the board diversity. Do they have a diversity of thoughts around the leadership teams? And what's interesting about Amazon is the CEO, Andy, is the ultimate outside insider, we can call, that he never run the major mainstream business, the amazon.com. He grew up from the AWS ecosystem.

And this is where he has the insider knowledge to push Amazon to new heights, potentially, but also at the same time is not too much drinking the Kool-Aid of the organization. So 30 years of research have been shown that outside-insider perspective is the best predictor in terms of CEO succession performance. But as I was looking across, I think Google is pretty good around that, despite Apple's changes in privacy setting. They continue to able to really getting close to the end consumer, unlike Meta or unlike Snap.

And Amazon is really around its ability to branch out to new business area, right? And follow by, perhaps, would be Microsoft. You're looking at the Xbox on what they've done with the changing of the gaming sector in terms of subscription model and acquiring different franchises. So these are the leading indicators that suggest which tech giants actually are future-ready.

JULIE HYMAN: I also wanted to ask you, if you have that sort of inside-outside perspective, does it also help you with awareness of how your company is perceived in the public and by your consumers? And you did some really interesting research, where you looked at sentiment towards large-cap tech and found that it's even worse than big banks right now, which I thought was really interesting. So talk me through that research and what it means for how these companies should manage themselves.

HOWARD YU: Right, remember a few years ago, people really felt like the biggest villain of our economy is the big banks. And what we've done at IMD is we take on all these publicly available information and fed to an algo to understand, what is the public sentiment? And turns out to be the case, the negative sentiment around tech giant is increasing more and more negative, to the point that they eclipse the negativity of big banks. So it really is big tech becoming know the biggest displeaser of our society.

Now, why does it matter? Because I think innovation really requires likability of the general public. I mean, you're looking at Meta, right? They tried cryptocurrency, but Mark Zuckerberg couldn't pull it off because all the regulator around the world do not trust them.

And so I think this is in part where having a CEO can really navigate that ranging from geopolitics to likeability in the general public becomes key. And being a good listener rather than just saying, I have growth, so any scandal couldn't touch me, instead having a more humble stance and actively seek out negative opinion and ratify those become really important. It's almost like a license to operate.

So I think AWS is interesting because in a way, for AWS to thrive, they must work with third party. And like amazon.com, we oftentimes see they have predatory practices. They launched a private brand to kill off the small-time merchant. That type of narrative needs to be stopped. And Amazon needs to turn itself into a much more benign giant, if you will, if it were to succeed and continue to grow.

BRIAN SOZZI: Well, Howard, let's stay on that thread, because one can make the argument that Facebook CEO and founder Mark Zuckerberg has become this polarizing figure in this country. As you look toward the company's next decade, is he the right person to be leading Facebook? Should he be more of an executive chairman type role, where he can work on the Metaverse, but get someone a little bit less controversial to lead the company operationally?

HOWARD YU: It's very important for Facebook or Meta to have a reset, as you just pointed out, Brian. I mean, personal reputation could last only so long. And when the public mind have sort of a burnish image of someone, then it's very hard to revert that perception.

And so I think it is in part why Mark decided to become the chairman of the group, so that he can really focus in on long-term investment and to nominate someone who have a much more hands-on experience, perhaps, to running the core business. Which, by the way, the core product is also facing existential problem, under threat by TikTok and losing touch with the younger generation, because previously they have been focusing on growth and growth alone. And so Facebook needs a reset in terms of its agenda.

But like you described, I mean, I think Meta is really hitting the juncture right now. They have no other chance but pull off Metaverse as we know it in order to generate a refresh excitement among the financial market. Its core business is slowing. There are competitors coming in.

They tried to pull up crypto. It failed. And all is left is this one big bang of Metaverse, which, of course, Apple has initiative and many others have initiative. And so which is why I see the great pressure on Meta to reinvent itself. They are on a burning platform.

JULIE HYMAN: The stakes are high-- really great framing of all of this, Howard. It's great to catch up with you, Howard Yu, IMD Business School LEGO Professor of Management and Innovation. Thanks so much, Howard. Good to see you.