What is the stock?
Amazon is a global ecommerce provider serving customers across North America, Europe and Asia Pacific. The company has a broad retail offering, which it operates through an Amazon Prime membership, whereby customers pay an annual fee for unlimited delivery of retail items purchased. Amazon also operates one of the biggest global cloud computing platforms, Amazon Web Services (AWS).
How long have you held the stock?
We have held the stock since the inception of Munro Partners in August 2016. We also held the stock for several years at our previous employer.
What do you like about it?
We are excited by Amazon’s opportunity and believe the company is at the start of a very long growth runway. Amazon is developing its retail presence globally by growing its prime membership base (which, despite much fanfare, is not yet available in Australia). Prime members are estimated to spend almost five times as much on Amazon after three years compared to a non-prime member. Additionally, e-commerce is in its relative infancy, and while Amazon is dominant in US retail spending it only makes up approximately 4% of total retail spending.
How is it better than its competitors?
Fulfilment is a vital part of e-commerce, and Amazon has the edge over its competitors on this front. Through its prime membership, Amazon essentially loss-leads the logistics and delivery part of e-commerce to guarantee delivery of its goods for free within 48 hours of order, which places it at an advantage to competitors in regards to consumer satisfaction.
What do you like about its management?
A key part of the investment process at Munro Partners is looking for companies with a controlling shareholder. We believe Jeff Bezos’ 20% share of the company means senior management is well-aligned with investors. Additionally, having a dominant controlling shareholder means the company is focused on the long-term position of the company.
What is your target price?
We value Amazon on 22 times enterprise value (EV) to EBITDA basis, and our target price is 1550 USD on a blended forward 12-month basis.
At what point would you sell it?
We believe Amazon’s growth runway ahead means the position is a core portfolio holding for a long period of time. We see regulation as being the primary risk to the stock, and should any serious regulation come into existence we will re-examine the investment case.
How much has it added to your overall portfolio over the last 12 months?
Amazon has been the sixth best contributor to the Munro Global Growth Fund since our inception in August 2016, with the stock rising 50% since then.
Where do you see value?
We see value in the growth opportunity Amazon has in both retail and cloud computing. Amazon is still a long way from serious profitability in its retail segment, with the focus being on growing its share globally, particularly in areas such as India and Asia Pacific. Amazon’s investment in fulfilment has created a strong network effect giving it the growth, sustainability and leverage that we look for. Additionally, Amazon’s cloud computing business is continuing to grow and take market share, driven by increasing global cloud computing adoption. Cloud computing makes up less than 10% of global computing, and Amazon accounts for approximately 80% of cloud computing, hence providing ample room to capture further market share.
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