The Forbes 400 list, which makes up the 400 richest Americans, has a legendary hedge fund manager on it. This successful investor, whose estimated net worth is an astonishing $6.7 billion, has an unbelievable track record in the public markets. His firm produced an annualized return of 20% over a 40-year stretch between 1970 and 2010. I’m talking about George Soros.
While Soros’ investment strategy has famously focused on global macro bets, he also owns some wonderful businesses that readers might consider holding for a longer time period. In fact, he’s bullish on Amazon (AMZN -0.07%), as his family office and previous hedge fund, Soros Fund Management, had under 4% of its assets in the e-commerce juggernaut. This makes it the $5.9 billion portfolio’s fourth-largest holding as of Sept. 30, 2022.
After taking a closer look at the tech giant, it’s easy to see why Soros is a fan of the stock.
Facing some challenges
Like most other businesses out there, Amazon hasn’t been immune to negative macroeconomic trends that were spurred by the Federal Reserve’s aggressive rate-hiking policy in 2022. Higher interest rates implemented to curb soaring inflation have had corporate executives preparing for a recession in the near future. And Amazon, which is facing decelerating revenue growth and squeezed operating margins, is fully dealing with the pain.
Making matters worse is the fact that it’s now evident the business overinvested heavily in its logistics and operations footprint throughout the depths of the pandemic, hoping that online shopping would continue to remain robust. This didn’t end up happening. E-commerce’s share of overall retail spending in the U.S. normalized after it peaked in the first quarter of 2020.
The company also posted net losses in the first two quarters of 2022, the first time it’s been in the red during a three-month period since Q1 2015, seven years earlier. What’s more, Amazon just announced that it’s laying off 18,000 employees. This is clearly an enterprise that isn’t firing on all cylinders right now.
Dominant business lines
However, for investors who can look past the near-term struggles, it’s not hard to see that Amazon is still an outstanding company with multiple levers to continue achieving stellar growth in the years ahead. E-commerce has taken a step back, but it still only accounted for less than 15% of all retail activity in the U.S. and under 20% globally in 2022. This means that Amazon, with its leading market share in online shopping in both the U.S. and worldwide, is set to keep benefiting immensely as consumer behavior continues shifting away from brick-and-mortar retailers.
Besides Amazon’s colossal e-commerce operations, it has other thriving business lines that shareholders can be optimistic about. The company’s Prime membership, which now counts over 200 million members across the world, is a critical tool that Amazon uses to drive a valuable recurring revenue stream by leveraging its existing infrastructure. For $5 extra a month, members can now order an unlimited number of prescription drugs straight to their doorstep. The ongoing addition of value helps maintain the image that this is indeed the world’s most customer-centric company.
While online shopping has negatively affected the business, Amazon Web Services, its burgeoning cloud computing segment, saw revenue increase 20% in the latest quarter, with a healthy operating margin of 24%. And it is now well known that digital advertising is another booming revenue driver, as Amazon was able to grow sales in the quarter 19% on a year-over-year basis to $11.6 billion. The company now only trails behind Alphabet and Meta Platforms in digital advertising.
After hitting their peak in July 2021, Amazon shares are down 40%, and they now trade at a price-to-sales multiple of 2.3. Compared to the stock’s trailing five- and 10-year historical valuations, this is a clear bargain, especially for investors who have a long-term mentality. While there might be more economic pain in 2023, there’s really no reason to believe that Amazon can’t weather any adverse scenario and come out stronger on the other side.
If a famed investor, especially one who’s in an elite category like George Soros, is betting on Amazon, it’s definitely worthwhile for individual investors to take a closer look at why. The business is certainly facing some headwinds right now, but it’s still a dominant enterprise, with a huge expansional runway ahead of it. What’s more, investors get to buy the stock at a steep discount. It’s a good idea to pounce on this rare opportunity.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Neil Patel has positions in Alphabet, Amazon.com, and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Amazon.com, and Meta Platforms. The Motley Fool has a disclosure policy.