Is This The New Berkshire Hathaway?
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
If only, if only... the words every investor thinks as they look at a chart of Berkshire Hathaway (NYSE: BRK-A). One share was around $18 in 1963, $5500 in 1995, and today hit a 52 week high of $144,805. Finding companies that can pull off that kind of share price appreciation is the Holy Grail of stockpicking. Are there any companies out there with the Buffett Secret Sauce?
Is Bezos The New Buffett?
I think that company is Amazon.com (NASDAQ: AMZN) whose CEO and founder Jeff Bezos was named #2 of the Best Performing CEOs In The World for 2013 by Harvard Business Review. Number One was the late Steve Jobs. The article noted that Bezos has increased shareholder returns over 12,000% and an average CAGR of 35%. Amazon's aggressive growth into new areas of profitability like cloud computing and content creation were detailed as new profit drivers. Just today it was reported Amazon plans to turn Zombieland into a show on their Prime instant video stream.
But this isn't what is similar to Berkshire Hathaway. Berkshire has over 50 subsidiary companies and not all are insurance companies. Besides all the shopping sites on Amazon.com that cover virtually every demographic (except zombies): wag.com, (pet supplies), Diapers.com (everything for baby), vine.com (green living), casa.com (everything for the home), YoYo.com (toys), several fashion sites, book sites, as well as the entire amazon.com marketplace there are several businesses in which Amazon and/or Jeff Bezos have investments.
These are difficult to find but some are: investments in Living Social, the DC based rival to Groupon, Makerbot, a Brooklyn based 3D home printer system, and Blue Origin, the most ambitious and out there investment (this one is a Bezos investment, not Amazon) a private space technology company competing to be the International Space Station carrier. Since 1998 Amazon has acquired 35 companies, 20 of them since 2007.
Like Google (NASDAQ: GOOG) Amazon's closest competitor, Amazon doesn't trumpet about all the pies in which it has fingers. They aren't resting on the windowsill for all to see. One thing they have been very open about and about which CEO Bezos has been upsetting Wall Street for years is that Amazon is a long term proposition, a"take care of customers first, then shareholders profit" venture. Isn't that similar to Buffett's philosophy?
In an interview for that same Harvard Business Magazine article Bezos summed up the company's approach to maximizing shareholder value, "Percentage margins are not something we seek to optimize. We want to maximize the absolute-dollar free cash flow per share. If we can do that by lowering margins, we will. Free cash flow is something investors can spend. They can’t spend percentage margins." Or as Buffett said, "If a business does well the stock eventually follows."
Method To The Madness
Like Buffett changed emphasis from the declining textile business of Berkshire Hathaway to insurance, Amazon has expanded from its origins as an online bookseller to the cloud, hardware devices like the Kindle and Kindle Fire, the exhaustive e-tail platform, and content creation and video streaming. The number of businesses they have challenged and competed against is innumerable as it has changed the way the world buys things. Netflix, Apple, Google, Barnes & Noble, eBay, Wal-Mart, IBM, and Target are all competitors of Amazon. And yet it still had the best holiday e-tail numbers ever.
I am so tired of saying the P/E is offputting, huge, ginormous, whatever at 3216.55 yet it must be mentioned. Analysts have a mean estimate of earnings of $1.81 a share by year end. That would seriously bring down the P/E to 150 or so. Not anything a value investor would countenance but growth investors would be less hesitant what with the huge reach of Amazon's enterprises. Amazon reports on January 29 and expects Bezos to reaffirm to Wall Street the strategy of bringing customers into the Amazon ecosystem as satisfied lifelong customers rather than try to impress analysts with massaging margins.
Their biggest competitor right now is Google which was my alternative to Amazon as the new Berkshire Hathaway. Google just reported and beat on revenues and EPS for the quarter sending the stock up 5% after hours to $738.20 still shy of its 52 week high of $774.50. Google has Android, tablets, cloud, and search revenue instead of e-tail revenue. Before reporting it was trading at a 22.03 P/E, almost twice that of Apple.
The Final Takeaway
I think most investors should own a little bite of one of these three, Apple, Google, or Amazon as these are virtual conglomerates. I mean virtual in both senses as in almost and as in virtual, cloud, internet, tech type virtual. These companies have the means and the method to keep disrupting and surprising the Street and the world. Buffett says he doesn't understand tech but Bezos sure does and he's turning Amazon into a 21st century Berkshire.
leglamp has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Google. The Motley Fool owns shares of Amazon.com and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!