Hayden Capital, an investment management firm, published its first-quarter 2022 investor letter – a copy of which can be downloaded here. During the first quarter of 2021, Hayden Capital declined by -39.2%. The fund has generated a +15.6% annualized return for our partners since our portfolio’s inception. The fund invests globally across the market cap spectrum – seeking opportunities to purchase high-quality franchise businesses at discounted valuations. Try to spend some time looking at the fund’s top 5 holdings to be informed about their best picks for 2022.
In its Q1 2022 investor letter, Hayden Capital mentioned Amazon.com, Inc. (NASDAQ:AMZN) and explained its insights for the company. Founded in 1994, Amazon.com, Inc. (NASDAQ:AMZN) is a Seattle, Washington-based multinational technology company with a $1.0 trillion market capitalization. Amazon.com, Inc. (NASDAQ:AMZN) delivered a -37.82% return since the beginning of the year, while its 12-month returns are down by -38.73%. The stock closed at $103.67 per share on June 13, 2022.
Here is what Hayden Capital has to say about Amazon.com, Inc. (NASDAQ:AMZN) in its Q1 2022 investor letter:
“Amazon reached a peak by the end of 1999, at a valuation of over $30BN. Considering that the company only generated $1.64BN in revenues that year (growth of 169% y/y), this equated to a valuation of 18x Price / Sales at the peak.
More notably though, was that Amazon was a pure 1P retailer at the time, meaning that they owned the inventory that they sold. Long-term margin assumptions under this business model were low, at just ~5% expected operating margins (365x implied structural operating profits).
By the time the stock bottomed in September 2001, shares were trading for ~0.7x P/S or 14x structural operating profits.
During those years, Amazon worked to reduce its operating losses and dialed back its growth investments as a result. In 2000, Amazon grew revenues by 68% y/y and reduced its cash burn from -26% operating margins to -6% by the end of the year. In its year-end 2000 earnings release, Amazon indicated that it targeted profitability by the end of 2001.
While the stock continued to decline throughout the first 9 months of 2001, the company reiterated on its 3Q 2001 earnings that it would achieve its profitability target within the next quarter. They had to dial back growth from its previous ~68% y/y in 2000 to just ~13% y/y growth in 2001, in order to cut costs and achieve this.
However, with investors focused on profitability, this period marked the turning point for the stock price, with a bottom ~$6 per share (equating to the aforementioned ~0.7x P/S or ~14x structural operating profits). Notably, based on this, the stock was able to bottom a full year before the NASDAQ index found a bottom in September 2002.
Over the next few years, Amazon’s fundamentals remained strong, with sales growing ~26% y/y in 2002 and proving to investors that the company could be profitable in such an environment. By 2003, the company was generating $5.2BN in sales and reported its first full year of profits.
Within a little over a year of bottoming, by the end of 2002, the share price had recovered 240% to ~$21 per share (equating to 1.8x P/S). By the end of 2003, the stock had recovered to a 4x P/S multiple or $21BN valuation. This equated to a ~8.5x return on the stock price in just a little over two years.”
Photo by Bryan Angelo on Unsplash
Our calculations show that Amazon.com, Inc. (NASDAQ:AMZN) tops our list of the 30 Most Popular Stocks Among Hedge Funds. Amazon.com, Inc. (NASDAQ:AMZN) was in 271 hedge fund portfolios at the end of the first quarter of 2022, compared to 279 funds in the previous quarter. Amazon.com, Inc. (NASDAQ:AMZN) delivered a -26.92% return in the past 3 months.
In June 2022, we also shared another hedge fund’s views on Amazon.com, Inc. (NASDAQ:AMZN) in another article. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q1 page.
Disclosure: None. This article is originally published at Insider Monkey.
