Jeff Bezos owns a little bit less of the company he founded nearly three decades ago. SEC filings show the centibillionaire sold 1.67 million shares of Amazon (AMZN -0.21%) stock earlier this month. What's more, there are reports he's planning to sell more, if he hasn't already.
When a big shareholder sells such a substantial amount, it can have a massive impact on the stock price. So much selling pressure can push the price down as the seller looks to liquidate their holdings. So should investors be cautious with Bezos as a seller, or take any weakness in the stock price as an opportunity to buy shares?
Why is Bezos selling shares?
There's an important detail in the SEC filing reporting Bezos' stock sale that investors can't overlook: Bezos donated his shares. The two transactions that took place on Nov. 15 and 16 are marked with transaction code G. That means they're contributions to nonprofit organizations. The sale price is $0, indicating Bezos donated the shares directly instead of actually selling them. What the organizations do with the shares is out of his control.
It's an effective tax planning strategy for stock investors. Donating shares to nonprofit organizations will provide two tax benefits. First, you get to deduct the value of the shares you donate as a charitable contribution on your taxes. Second, you avoid paying capital gains taxes on any gains on your investment if you had sold the shares.
Bezos has committed to giving away most of his fortune. He started the Bezos Earth Fund to fight climate change and protect nature in 2020. However, he's yet to sign the Giving Pledge, which was started by Bill Gates and Warren Buffett as a way for billionaires to commit to giving away their wealth. The sales from earlier this month appear to be a simple tax-planning maneuver by Bezos to fund his charitable giving plans.
That said, he has other reasons to sell. Bezos is funding his space exploration company, Blue Origin, with his Amazon stake. He previously said he plans to use $1 billion worth of Amazon stock every year to fund the company. While he could use debt or raise equity funding from investors, selling shares to fund the company allows Bezos to maintain full control over Blue Origin.
Blue Origin is currently bidding on acquiring a second space company, United Launch Alliance. That could end up costing the company billions of dollars to absorb, and Bezos will probably tap his Amazon shares to fund the acquisition.
Considering that the stock donation left Bezos with 988.25 million shares of Amazon, he's not at risk of running out of shares anytime soon. Overall, the donation accounted for less than 0.2% of his holdings. He still owns about 10% of the company's shares.
Take the opportunity to buy Amazon stock
Any weakness in Amazon shares from Bezos' reported selling should be seen as an opportunity for investors to buy the stock. There's a lot to like about Amazon these days, and all indications are that it's on track to produce substantial free cash flow for investors in 2024.
For one, the company is seeing improved operating margins as it optimizes its logistics network and improves efficiencies throughout the company. On top of that, it's pulling back on capital expenditures after several years of massive investments in data centers, warehouses, and distribution centers.
Profitability should continue to get a boost over the next few years as its cloud computing segment reaccelerates growth, its advertising business continues to outpace the industry, and it shows continued operating leverage in e-commerce through third-party seller services.
After a multi-year investment cycle, Amazon is on track to produce record profits for investors. And the stock still has room to move higher. If Bezos is selling shares, I'll happily buy a few from him.
