Ahead of Amazon earnings, Bill Miller makes a blistering bull case – CNBC
The value of Amazon‘s business “should double” in the next three years, value investor Bill Miller told CNBC on Thursday, ahead of the scheduled after-the-bell earnings release in the afternoon.
“Amazon is going to grow 25 percent a year for the next three years,” predicted the founder of Baltimore-based LMM. “That’s a big position and has been for a long time,” he said, referring to his Amazon holding.
Miller said he’s betting on both Amazon Web Services cloud computing and e-commerce.
“Their addressable market in AWS alone is in the trillions of dollars,” he said. “Facebook and [Alphabet‘s] Google, both of which are great companies … are addressing global ad markets about $500 billion to $600 billion,” by comparison.
Meanwhile, he added, “U.S. retail alone is $5 trillion.”
Acknowledging Amazon’s push into the “capital intensive” logistics business, Miller said it’s all about making online retail customers happy by delivering orders faster.
Amazon plans to invest about $1.5 billion in an air cargo hub in northern Kentucky, state officials said Tuesday, The company said it would aim to employ 2,000 people and eventually house 40 Amazon Prime Air planes there.
“Amazon would rather ship through FedEx or the post office, but they don’t have the capacity, especially in the fourth quarter, to handle that surge,” said Miller, pointing to Tuesday’s earnings, revenue and outlook miss at UPS.
Margins at UPS were squeezed because home deliveries result in fewer packages dropped per stop than businesses.
Miller said he spoke to Amazon chief Jeff Bezos about a year ago, and asked him about the cash to set up logistics operations. Miller said Bezos responded by saying he’s “highly confident he could earn well above his cost of capital.”
The LMM chief said he’s taking Bezos at his word because of the many past successes Amazon has had in expanding its reach.
On e-commerce, Miller said, “Amazon’s gross margins are now higher than Wal-Mart‘s, considerably higher than Wal-Mart’s.”
“Wal-Mart is a good competitor. They’re not going away,” he said, but argued Wal-Mart is going to have a hard time catching up online while running the legacy brick-and-mortar stores, which have been diminishing in profitability.
Miller also said Wal-Mart overpaid for e-commerce start-up Jet.com. The $3 billion deal that closed in September saw Jet founder Marc Lore join Wal-Mart as CEO of the retail giant’s U.S. online shopping business.
Before Jet, Lore helped start Quidsi, behind the e-commerce websites Diapers.com, Soap.com, Wag.com and more. Quidsi sold to Amazon in 2011 for $550 million.
Miller’s LMM, a partially owned subsidiary of Legg Mason, has $2 billion in assets under management. Miller is also portfolio manager of the top-performing Legg Mason Opportunity Trust fund.
— Reuters contributed to this report.