Hedge fund heavyweight Daniel Loeb, CEO of Third Point, is bullish on Amazon (AMZN).
He said in a private call with investors Wednesday that the market undervalues the technology/online retail titan by about $1 trillion, knowledgeable sources told The Wall Street Journal. Amazon currently has a market capitalization of $1.6 trillion.
Amazon Web Services, the company’s cloud computing business, has an enterprise value over $1.5 trillion, according to a slide shared on the call, The Journal sources said. And the slide showed that Amazon’s retail side may be worth $1 trillion.
Putting the numbers together could give a market-cap of about $2.5 trillion. That would put Amazon’s share price at about $4,942, compared to a recent quote of $3,163.
Third Point increased its position in Amazon during the fourth quarter, ending the period with $784 million of Amazon shares, up from $608 million at the end of the third quarter, according to a regulatory filing cited by The Journal.
AWS Spinoff?
In his fourth-quarter letter to investors, Loeb said he bought more shares because of “our conviction that Amazon is at an important crossroads, as new management considers its long-term strategic plan to move the company forward, which may include several bold initiatives that are the subject of wide market speculation at the proverbial investor water cooler,” according to The Journal.
There has been speculation in the market that Amazon might break itself up, as the federal government attacks its alleged monopolistic practices.
Third Point has told other hedge funds over the past few weeks that spinning off AWS may be a good idea, knowledgeable sources told The Journal. Such a move might satisfy government concerns, Third Point reportedly said.
In his letter, Loeb lauded Amazon for buying back shares in January for the first time in 10 years and for adding more specifics to its earnings reports.
Morningstar Analyst is Bullish Too
Morningstar analyst Dan Romanoff shares Loeb’s enthusiasm for the company, putting fair value at $4,100, up from its recent quote of $3,163. “Amazon dominates its served markets, notably for e-commerce and cloud services,” he wrote in a commentary earlier this month.
“It benefits from numerous competitive advantages and has emerged as the clear e-commerce leader given its size and scale, which yield an unmatched selection of low-priced goods for consumers.” As for AWS, “Amazon is also a clear leader in public cloud services,” Romanoff said.
In addition, “the firm’s advertising business is already large and continues to scale, thus offering an attractive option for marketers looking to access a vast audience with a variety of proprietary datapoints about those very consumers,” he wrote.
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