3. Amazon.com, Inc. (NASDAQ:AMZN)
Value of Rokos Capital’s 13F Position: $47.73 million
Number of Hedge Fund Shareholders: 281
Rokos has been an Amazon.com, Inc. (NASDAQ:AMZN) shareholder since Q4 2020, but decided to make a much bigger splash in the stock a year later, hiking his position by 1,081% to 14,221 shares. Amazon is one of the most popular stocks among hedge funds, with a record 281 funds long AMZN shares on December 31.
Amazon.com, Inc. (NASDAQ:AMZN) shares have hit a rare flat period, being down by 4% since the summer of 2020. That could make it the perfect time to buy the stock, as the company’s own management feels, having bought back shares earlier this year for the first time in a decade. Investors are concerned about Amazon’s slowing sales growth, which was just 9% in Q4, especially as the pandemic continues to fade. The company’s free cash flow was also $15 billion in the red in 2021 as a result of a hefty $61 billion in capital expenditures.
There’s plenty of potential upside coming out of this pandemic period for Amazon, however. Third Point Management believes Amazon.com, Inc. (NASDAQ:AMZN) is at an important inflection point that is likely to improve several of the company’s key metrics and likewise boost its share price. The fund discussed its views on the stock in its Q4 2021 investor letter:
“We have long admired Amazon as investors (and appreciated its myriad benefits as consumers) and have owned shares several times in the past. We acquired a sizable position during the early innings of the pandemic ahead of what we believed would be a structural acceleration in revenue for the group. After lagging tech peers for most of last year, we significantly increased the size of our investment, reflecting our conviction that Amazon is at an important crossroads as new management considers its long-term strategic plan to move the company forward, which may include several bold initiatives that are the subject of wide market speculation at the proverbial investor water cooler.
Amazon’s most recent quarterly results bolstered our view that the company is now at an inflection point that should usher in an improvement in various metrics, as well as an upturn in the company’s share price. The long-term secular growth drivers for the company—cloud adoption and eCommerce penetration—remain firmly intact. Sales growth ought to reaccelerate as revenue comps ease. Fixed cost leverage should improve after a large investment cycle that effectively doubled the fulfillment capacity of the company over the past two years. Excess costs associated with the Covid pandemic, labor shortages, and supply chain disruption should start to disappear as the external environment normalizes. And, shares are still trading at the lower end of the company’s historical multiple range. It’s not often that you get to buy shares in a high-quality company at the low end of its valuation range ahead of a meaningful reacceleration in growth at a 30%-40% discount to its present intrinsic value with an almost unlimited runway of potential to compound in value.
While the fundamental outlook for shares looks bright, we were encouraged by two additional developments this quarter. First, we noted the Board repurchased shares in January 2022 for the first time in a decade. It is not hard to imagine that Amazon, like some of its peers, may start returning more capital to shareholders, especially as the balance sheet approaches a net cash position and free cash flow improves. Second, we noted the introduction of additional disclosure from management, specifically breaking out advertising revenue and detailing capital expenditures by category. Amazon is a large and complex company and greater financial disclosure will no doubt help investors better understand the various parts of the business and significant sum-of-the-parts value. We expect these shareholder-friendly moves may be just the tip of the iceberg as Amazon’s talented and focused new CEO Andy Jassy sets out his plan for the Company’s future.”
