07Aug2020-cover
07Aug2020-cover
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Amazon Makes Money Everywhere

Amazon reported its quarterly financial results last week and for the first time in more than half a decade, and after significant investment, Amazon’s International segment recorded positive quarterly operating profit.

– Chris Demasi

Last week when Amazon reported its most recent quarterly financial results, management said the recent surge in online retailing that came as the COVID-19 pandemic kept shoppers at home, offered a glimpse into the future of the company’s business outside the US. Long-term investors should like what they see.

Amazon International Segment – Operating Income (US$m)

 

For the first time in more than half a decade, and after significant investment, Amazon’s International segment recorded positive quarterly operating profit. Management described an array of Amazon Prime membership benefits that were offered internationally earlier in the lifecycle of the program than had been the case in the US. This meant adoption of the Prime program was well-established to meet the pick-up in demand that happened in the past few months.

As higher volumes came on to Amazon’s platform, this generated greater revenues that came with little extra cost. Amazon leveraged its fixed costs “to the hilt”, in the words of the Chief Financial Officer Brian Olsavsky, all in one quarter and demonstrated a level of profitability earlier than many had expected. Profit before interest and taxes outside the US reached $345 million, and contributed to aggregate profits of $5.8 billion in the quarter.

We expect management to redeploy some of these earlier-than-expected gains back into the business, building out additional fulfilment and logistics capacity, and continuing to hire staff to support the growth. In the near-term profit margins may come back down, or even drop below zero. But we have had a look into the future of Amazon International’s profitability already.

Amazon is a business that will continue to win in very large markets around the world, and will be a compounder for years and decades to come.

Chris Demasi is a Portfolio Manager with Montaka Global Investments.
To learn more about Montaka, please call +612 7202 0100.

Our Montaka Active Extension strategy strives for maximised return over the long-term. Owning the Montaka long portfolio typically scaled up to approximately 130 percent - and the Montaka short portfolio typically scaled down to approximately 30 percent – this strategy results in a net market exposure of approximately 100 percent most of the time.

Our Montaka variable net strategy strives for significant downside protection – but with minimal upside reduction. Focused on owning the world’s great and growing businesses when they are undervalued, while managing a portfolio of short positions in businesses that are deteriorating, misperceived, and overvalued, this strategy is our flagship long-short

Our Montgomery Global strategy strives to act as a core, high conviction, global portfolio holding. Consistent with the long portfolios in our Montaka strategies, this offering is focused on owning the world’s high quality, undervalued businesses – and cash when appropriate – to outperform its benchmark. Branded as “Montgomery Global” in Australia to reflect a key.

Our
Strategies

Our Strategies

Our Montaka Active Extension strategy strives for maximised return over the long-term. Owning the Montaka long portfolio typically scaled up to approximately 130 percent - and the Montaka short portfolio typically scaled down to approximately 30 percent – this strategy results in a net market exposure of approximately 100 percent most of the time.

Our Montaka variable net strategy strives for significant downside protection – but with minimal upside reduction. Focused on owning the world’s great and growing businesses when they are undervalued, while managing a portfolio of short positions in businesses that are deteriorating, misperceived, and overvalued, this strategy is our flagship long-short

Our Montgomery Global strategy strives to act as a core, high conviction, global portfolio holding. Consistent with the long portfolios in our Montaka strategies, this offering is focused on owning the world’s high quality, undervalued businesses – and cash when appropriate – to outperform its benchmark. Branded as “Montgomery Global” in Australia to reflect a key.