The Amazon.com, Inc. (AMZN) stock price has already soared 108% this year. And if big-time fund managers keep buying, Amazon shares may still have quite the runway ahead.
Famed billionaire investor George Soros — who reaped much of his fortune and notoriety in a bet against the British pound that netted $1 billion in a single day — is now betting on AMZN stock, according to a recent Securities and Exchange Commission filing.
Institutional investors with more than $100 million in assets are required to file a 13F form with the SEC at the end of every quarter, disclosing any major buying or selling activity in the portfolio.
Soros certainly does a lot of buying and selling, and his fund, Soros Fund Management LLC, boasts 222 stocks worth upward of $5.8 billion as of the end of September.
One of his fund’s biggest buys last quarter was AMZN stock, which he bought at an average price of $505.62.
AMZN Already Wildly Profitable
His Amazon position has already made him millions. While most of Soros’s quarterly activity was simply adding to or cutting an existing position, the guru made only a handful of new purchases in the third quarter, with AMZN being one of the most notable.
The purchase of 77,877 shares at an average price of $505.62 puts Soros’s cost basis at around $39.4 million. At yesterday’s closing price of $647.81, his stake was worth a cool $50.4 million. In other words, he’s already booked a 28% gain in a single quarter on the trade. That’s a compounded annual rate of return of 168%.
It’s not like Soros is batting a thousand, though … no one is. His top buy last quarter was actually CIT Group (CIT), which is down about 8% from his original purchase price. CIT Group, a mid-cap bank, is no AMZN, though.
There’s a reason the AMZN stock price has taken off like a rocketship in 2015. The e-tailer has strung together an impressive series of quarterly earnings beats, driven largely by its rapidly growing Amazon Web Services division, which is quickly becoming an industry leader in cloud computing.
AWS is also growing like wildfire, its revenues up 80% in the most recent quarter to $2.1 billion. But it’s not the revenues that make AWS such an important part of Amazon — and thus make AMZN an attractive prospect for a trend-follower like Soros — it’s the margins.
Last quarter, AWS and its $2.1 billion in revenue accounted for just 8.2% of Amazon’s total revenue. But its margins were so absurdly high — and the rest of Amazon’s margins so absurdly low — that AWS operating income accounted for 52.5% of Amazon’s total operating income.
That pretty much makes AWS Amazon’s own mini cash cow, and allows the company to continue sacrificing margins elsewhere in the business in an effort to win market share.
Although Amazon admittedly trades at pretty insane multiples today, there’s little doubt it will be the go-to for shoppers this holiday season. And, with Walmart (WMT) openly struggling, AMZN may be the go-to retailer period, for the foreseeable future.
As of this writing, John Divine was long AMZN stock. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.
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