Amazon: Turning Weaknesses into Revenue

I bought Amazon for the first time. I’m not sure why I never bought before. If anyone asked me what my favorite stock was, I would say Spotify or Amazon. I own $30k of Spotify and none of Amazon. I don’t really get why this happened, but I’ll blame it on cognitive dissonance. That being said, I bought $1k of Amazon today and set up a biweekly recurring purchase of $200. It is time to right my wrongs.

To make it all worse, I turned down a job at Amazon once. Part of the package offer was $85k in stock. This was a few years back when Amazon stock was ~$1k per share. That offer would be worth ~$300k right now. Oh well, all’s well that ends well.

I love Amazon for a number of reasons, many of which are intertwined. 

1) Great management – Jeff Bezos is amazing. The best way to get a vibe for why Jeff Bezos is amazing is to read all of the annual letters for Amazon. They always contain significant insights.

2) Optionality – In the past month alone, Amazon won approval for a drone delivery fleet and approval to send low cost wifi from a satellite. Normally, I would take these with a grain of salt, but Amazon has proved the ability to execute on these ideas.

3) E-commerce – I love e-commerce. I think this is just the start of massive growth in this space.

4) Sum of parts – Amazon has several different segments of their business, the key areas being North America, International and AWS. AWS has a TTM Operating income of $11,289B. Applying a reasonable PE multiple to this (considering 29% YoY growth) will quickly reveal a reasonable valuation. The rest of the business shows $281,806B in sales (growing at 27% YoY). Simple math is all it takes from here. On top of this, Amazon has significant media assets.

5) Autocatalysis – Arguably the most impressive part of Amazon is their ability to turn weaknesses into strengths and then turn strengths into new business ventures! The best example is AWS. Initially AWS was developed to help the efficiency of Amazon’s infrastructure. Flipping AWS into the business it was took far less work, because Amazon already did all the work for themselves. Eventually, AWS became a cash cow for Amazon. 

6) Market Cannibalism – Amazon isn’t afraid to hurt its own revenue. Amazon isn’t afraid to burn cash on new ventures that currently are not financially beneficial. Amazon is playing for the long term and not trying to appease share holders in the short term. An example would be Amazon FBA.

It might be crazy, but I think they could easily 10x from here for the above reasons. I bought Amazon today and I will keep buying Amazon.

Author: fatbabyfunds