The River Keeps on Flowing

“There are many, many lines in the water here at Amazon. If you are competing against them, then you had better beat them on price. The demise of the department store model has in some senses been as a result of more competition from niche brands (who like Nike, now have their own store on Amazon) and the changing perceptions about shopping online.”


 

To market to market to buy a fat pig Stocks in Jozi slipped off their best levels of the day, almost closing in the red, the ALSI kept their head (collective bobbing heads) above water, up one-tenth by the close of business. We were trading above 55 thousand points and flirting with closing highs, industrials weighed on the overall market and in particular MTN. That stock (MTN) was sold off over six and three-quarters of a percent, conversely the beer giant AB InBev rallied about the same amount on cost cutting initiatives that have boosted profitability. There is only so much you can do about your customers consuming more beer, there is a lot that you can do about costs. To a point. More on MTN when they have their results next week, they could be throwing the kitchen sink at “it” (us) and scrubbing the decks clean for a new era.

Other stocks enjoying a good time of it was the likes of Anglo American and Mediclinic, there was a new all time high print during the day for Naspers (although they slipped by the close). Standard Bank was another standout stock that had rallied to a new 12 month high, perhaps lower rates are set to stand them (and many other banks) in good favour. At the opposite end of the spectrum was the likes of Famous Brands, isn’t that supposed to be linked to the consumer too? Perhaps Standard Bank, who have had many years of stock price mulling around (like much of the SA inc. non mining landscape), is looking cheap enough to buy some. It does all depend on the ratings downgrade, and whether or not they (all the banks) will have to raise more capital, and at what price?

Another noticeable 12 month low was from technology business EOH, I suspect that investors could be looking at the current share price and if the allegations are unfounded, then the stock certainly does look cheap at a little above 100 Rand. The company CEO put out a pretty strongly worded email, as Byron noted, if there was someone thinking about doing a deal with the company, they are certainly scrambling and something is definitely afoot here. What it is ….. is not completely clear, the market is definitely taking a wait and see approach and selling first and then asking questions later.


 

New York, New York! Stocks on Wall Street slipped in the second half of the session, politics still continues to grind away in the background, technology stocks came off the boil through the session, at least some of them. Apple, Alphabet and Microsoft all slipped off some recently lofty levels, Facebook post their results bucked the trend and added nearly three percent on the day to close at all time highs, after what were sparkling results from the session prior. Briefly both Facebook and Amazon were above 500 billion Dollars each, collectively one trillion Dollars.

Session end the Dow Jones added nearly four-tenths of a percent, the broader market S&P 500 sank around one-tenth, with losses across broader technology and healthcare pulling the overall market down. The nerds of NASDAQ lost nearly two-thirds of a percent, after having started the day in record territory. There was a magnificent Howard Marks piece titled: There They Go Again…Again, which offered some wonderful insight into all things, as he usually does. Marks sounds some warning shots across the bow of the market, indicating that he thinks there could be some trouble coming, he may be very early. He does have some compelling arguments for things such as cryptocurrencies and credit in particular, which is his area of expertise. Oaktree Capital themselves had results yesterday, which were well received.

Last evening saw a slew of results, equally yesterday in Europe, it was super-sized day. Starbucks, Stryker, Cerner, Nestle, L’Oreal and the list goes on, to include Columbia, Twitter, the aforementioned Oaktree and then some more. It really was a day of reading and trying to let it all sink in. Much of this will be written about in the coming days and weeks.


 

Company Corner

Amazon is an equally exciting and amazing business, every little bit as intriguing as the new technology titans of our time. What Jeff Bezos has been able to build over a period of two and bit decades is a testament to his vision and belief that anything is possible. In fact, the anything store from A-Z is what Bezos wants Amazon to be. Whether you are a part time user of the service to buy infrequently, or whether you are a Prime user who likes to order everything at all points online, and live for the convenience, then you pay more and Amazon is happy to deliver. I guess Bezos and Amazon work with the philosophy that if the customer adopts the product/service, then we will give it everything, if not, cut it and can it.

The company reported last evening, Second Quarter Sales up 25% to $38.0 Billion, missing earnings per share consensus by a wide margin (this is not new for this business), beating revenue expectations equally by quite some margin. It is equally true that it is not your average business to try and value, which is why, like many growing businesses, there is too much to try and “work out”. It is just too tough with the likes of Amazon to value this relative to a peer, in reality they are a disruptor of what we found to be normal. Shopping online is no longer something new.

The company also has a massive web services business (AWS – Amazon Web Services), where you can host your infrastructure offsite, at both a convenience and cost benefit. Gone are the days of knowing where your “box” or server was. The company continues to invest heavily there, looking to open five new sites in France, Sweden, Hong Kong, China and another (a second government cloud region in the East) “shortly”. Investments like these suck a lot of capital, as does their plans to add large amounts of space to their floor space in their fulfilment centre (where your goods come from). Equally, with Amazon becoming more aggressive in the content space, that investment sucks a lot of capital too.

This is still very much a North American business. 22.3 billion of the 37.955 billion Dollars generated in revenues coms from that region, the home market. There is scope to grow their business a lot in many ways, through content, through Amazon Fresh (and Prime Go), through continued roll out of their existing services in many destinations. India has become an interesting market for Amazon too, I am sure that they are finding it VERY different to their home base. Guidance was a little mixed, relative to expectations, not by too much.

The long and short of these results is that the company is investing in the key areas we have spoken about (the most in any other previous quarter in their history), as well as on engineers to build out their AI Alexa service. There is the small matter of the Whole Foods deal closing and seeing how the two models are going to combine, on the earnings call, Brian Olsavsky (CFO at Amazon) had this to say about the organic food store: “We think they are very customer-centric, just like us. They’ve built a great business, focus around quality and customer. So we’re really glad to join up with them.” It is that simple.

There are many, many lines in the water here at Amazon. If you are competing against them, then you had better beat them on price. The demise of the department store model has in some senses been as a result of more competition from niche brands (who like Nike, now have their own store on Amazon) and the changing perceptions about shopping online. Did you know that briefly yesterday, Jeff Bezos was the richest guy in the world on paper? And that was after having sold a lot of shares recently to fund his spaceship program. For Bezos, it isn’t about meeting the numbers that the analyst community sets for the company, in fact he has never been on a single earnings call to explain his vision, that was set out in the founding statement and letter.

In my opinion, Bezos writes just as compelling letters as Buffett, or Gates, or any of the other business giants. He talks about, in the recent annual report of True Customer Obsession and one must Embrace External Trends, as well as High-Velocity Decision Making. He then always attaches a 1997 letter to shareholders, now 20 years in and just as relevant. Some interesting points to pull out from there: “We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions.” That is exactly where we are now, and if you can’t take the heat of heavy investing, then this business is not for you. If you are looking for visionary thinking, a future-is-now business and something that will continue to define our lives. We remain conviction buy on Amazon.


 

Linkfest, lap it up!

E-sports takes another step toward becoming mainstream – This E-Sports League Will Pay Pro Gamers $50,000 Plus Benefits. This is good news for the likes of Tencent (Naspers) who make a large part of their income from gaming.

Thanks to the internet the need for libraries has diminished. Here are some amazing pictures of libraries around the globe, once the centre of knowledge – The world’s most architecturally stunning national libraries, in photos.

It is very hard to sit on the sidelines because you think something is a poor investment but then watch it go up and up and up – Bitcoin, Stocks & The Fear of Missing Out. Remember that the FED called the tech bubble 3 years before it popped. I’m not sure I would have been able to sit out of those stocks for 3 years while watching people around me make wild amounts of money on paper.


 

Home again, home again, jiggety-jog. As you all know, a new chapter has opened in my life, I will be leaving a place that has become a second home today. I thank Paul for all the years of slogging, starting in an office without windows with a desktop, a lap top and a tiny box TV so that we could watch the 2003 Proteas heartache. Paul is still the only guy I know who got 8 As and a B (for Ad Math) in the 80s, a time when you only had to do 6 subjects! I shall miss his incredible recall (try him), his wonderful foresight and his optimism about all things futuristic and present. I shall miss the mentoring and the steady hand when the world seems/seemed finished (it always does, doesn’t it), the keep calm and carry on. As well as another one that can’t get mentioned, it was on the side of my cap. A deep and wholehearted thank you to Paul from me.

And my colleagues have taught me more than any learning course could ever, and as it is with many things in life, there is a beginning and an ending. I shall equally miss Byron, Michael, Bright, Howard and Mavis, a business is made of these fine individuals who represent the face and DNA of Vestact. They keep learning and progressing in a way that is not really possible at other places of work. Mavis is responsible for some of the greatest sayings ever …. really. “Mavisims” include a steady favourite in this office, which can be interpreted in many different ways, it is as simple as “Stay Young”. And with that, I wish you all (and I shall miss you all) a wonderful investing journey. Stay young and keep on keeping on.


Sent to you by Sasha, Byron and Michael on behalf of team Vestact.

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