3. Amazon.com, Inc. (NASDAQ:AMZN)
Value of Duquesne Capital‘s 13F Position: $102 Million
Number of Hedge Fund Shareholders: 271
Amazon.com, Inc. (NASDAQ:AMZN) was another new addition to Druckenmiller’s 13F portfolio during Q3, with the money manager taking advantage of weakness in the stock to build a position of 906,250 shares. Amazon shares have lost 48% of their value over the last year and have continued to sink in Q4, dropping another 17%. The stock ranks as the second-most popular among hedge funds as of September 30.
It could be said that Druckenmiller traded Microsoft primarily for another AI and cloud powerhouse in Amazon.com, Inc. (NASDAQ:AMZN), as he sold off about $120 million worth of MSFT shares and spent most of those proceedings building a large Amazon position. While Microsoft’s shares have struggled this year, Amazon’s have performed even worse, losing nearly half their value. That clearly made them an intriguing buy-low candidate for Druckenmiller.
Investors have fled Amazon shares due in part to the company’s plunge from profitability in 2021 back to a loss in 2022. Weakening demand this year, coupled with the company’s exuberant growth initiatives during the pandemic boom lead to some overcapacity that Amazon is now in the process of correcting. The company is slashing as many as 20,000 jobs in a bid to return to profitability in 2023. Behind the ecommerce churn is the behemoth Amazon Web Services, which continues to grow at a strong pace and provide an anchor for the company’s results.
Lakehouse Capital believes Amazon.com, Inc. (NASDAQ:AMZN)’s valuation is the most attractive it’s been since the financial crisis, as the fund shared in its October 2022 monthly letter:
“The Fund’s largest position, Amazon.com, Inc. (NASDAQ:AMZN), reported a solid quarterly result with net sales increasing 15% year over year (19% in constant currency terms) to $127 billion. However, the business isn’t without its challenges and the company is seeing increasing macro pressures across both retail and Amazon Web Services (AWS), which resulted in guidance for the fourth quarter coming in below prior expectations. As has been the case for the last several quarters, profitability also remains under pressure due not only to external macro factors, such as elevated shipping and fuel costs, but also lower productivity and efficiency costs as a result of some overcapacity on the back of its recent investment cycle. While this does create some near term uncertainty, we continue to believe Amazon is well positioned to manage these issues and remains on track to deliver significant profit improvements over the next twelve months.
Aside from e-commerce, the two other most critical segments, AWS and advertising, grew 28% and 30% year-on-year, respectively. While AWS’ growth remains healthy, especially considering its scale, it was a noticeable slowdown from the 33% growth delivered last quarter. Management attributed the deceleration to the fact that they are seeing an increasing number of customers who want to control their cloud computing costs as the economy slows, and the company is proactively helping them move to lower storage tiers or instance levels, while also leveraging its own AWS Graviton chips. In our view, the current pressures Amazon is facing are largely macro-driven and not fundamental. We believe they will prove manageable with time and that the long term risk/reward is very compelling at these levels. As such, we remain patient holders and also note that the valuation is currently the most attractive it has been since the GFC at 5x trailing gross profit.”
