<

Overview: Tiger Global Management's 1Q14 positions

Part 8
Overview: Tiger Global Management's 1Q14 positions (Part 8 of 8)

Must-know: Why Tiger Global disposes stake in Amazon

Tiger Global Management and Amazon

Tiger Global Management’s latest 13F shows new positions in Avis Budget Group Inc. (CAR), Zillow Inc. (Z), and Trulia Inc. (TRLA). The fund sold stakes in Yahoo! Inc. (YHOO) and Amazon Inc. (AMZN). It raised positions in Vipshop Holdings (VIPS) and Charter Communication (CHTR).

AMZNEnlarge Graph

Tiger Global disposed of a position in Amazon Inc. (AMZN) that accounted for 4.10% of the fund’s 4Q13 portfolio.

Amazon is the world’s biggest online retailer. It has organized its operations into two segments: North America and International. The products offered on its retail websites primarily include merchandise and content purchased for resale from vendors and those offered by third-party sellers. Amazon also manufactures and sells electronic devices. It offers other services such as Amazon Web Services (or AWS), fulfillment, publishing, digital content subscriptions, advertising, and co-branded credit cards. The company offers customers the lowest prices possible through low everyday product pricing and shipping offers. Amazon also offers Amazon Prime, an annual membership program that includes unlimited free shipping on millions of items, access to unlimited instant streaming of thousands of movies and TV episodes, and access to hundreds of thousands of books to borrow and read for free on a Kindle device.

Amazon’s profit margins have shrunk

Amazon’s 1Q14 revenue beat estimates as it posted net sales increased 23% to $19.74 billion, compared with $16.07 billion in 1Q13. Net income increased to $108 million in the first quarter, or $0.23 per diluted share, from $82 million, or $0.18 per diluted share, but didn’t meet estimates. Operating income decreased 19% to $146 million in the first quarter, compared with $181 million in 1Q13. Amazon’s 4Q13 results announced at the end of January also missed expectations on weak holiday sales, and coupled with a conservative guidance led to a fall in shares. Investors have been concerned by the company’s inability to turn a profit consistently.

In 1Q14, Amazon said the North America segment revenue grew 26% to $11.86 billion while the International segment revenue grew 18% to $7.88 billion.

Amazon has invested heavily in streaming video, warehouses, and other product initiatives that have impacted its bottom line. It entered the hardware space by launching Fire TV, which is a box that streams videos, and announced that HBO Go will become available for Fire TV possibly by year-end. It has also launched its own video games, such as Sev Zero, and its own shows. The e-commerce retailer struck a content licensing agreement with HBO, making Prime Instant Video the exclusive online-only subscription home for select HBO programming, including The Sopranos, Six Feet Under, and The Wire. There is also speculation of an Amazon smartphone.

The annual subscription rate for Amazon Prime was raised to $99 from $79. For more on this, please read Why did Amazon increase the price of its Amazon Prime service? on the Market Realist website.

Amazon is required to charge shoppers sales tax in 20 states. A study by Ohio State University cited by news reports claimed Amazon sales declined 10% in the states where the tax was implemented. The company also sees intense competition in its retail business from e-retailers such as eBay, and in its cloud computing business from Google and Microsoft.

AMZN hedgeEnlarge Graph

Outlook has been lackluster

For the current quarter, net sales are expected to be between $18.1–$19.8 billion, or a growth between 15–26% compared with 2Q13. Operating loss is forecast between $-455 million and $-55 million, compared to $79 million in 2Q13.

The Realist Discussions