“When you look at their core US e-commerce business, which is the vast majority of their revenues, we’ve seen, for about seven or eight quarters, a deceleration in that growth.”
Mr Tringale also believes that Amazon’s Prime membership offering, where consumers pay an annual fee for free shipping and priority service, is close to saturation point.
“They have penetrated over 50 per cent of US households but they’re never going to have 100 per cent. They had a really nice growth phase but it is getting harder from here”.
Mr Tringale says the slowdown in e-commerce and Prime membership would have been enough to hurt the share price last year, but the market has begun to appreciate the success of Amazon Web Services, which he describes as a “phenomenal business.”
“That’s very well understood in the marketplace. We were at the Amazon analyst day a couple months ago, and the feedback was ‘Amazon Web Services alone as a $US500 billion ($696 billion) business’. So it tells you the market has priced it in more or less.”
As for the other avenues of growth that Amazon is pursuing, Mr Tringale says these are lower margin businesses “where they’re burning a lot of cash and where they don’t have the same promise and return potential as e-commerce or cloud”.
“They’ve gone all in on groceries in the US. Groceries is structurally a low margin business and grocery deliveries even worse.”
“A few people have tried it in the US and none of them are in business today. He’s very committed to that so I think that’s a little troubling.”
The final point of caution for WCM is Jeff Bezos’ total commitment to India.
“The problem is India is a very different market than China. They don’t have the same government-sponsored growth and are not under the same rule of law.”
“For a lot of reasons, India is not as attractive as China but they’re burning billions of dollars a year over there.”
Mr Tringale said Amazon, which has a market capitalisation of more than $US1 trillion, is unlikely to double again.
So instead they’re looking at companies such as Shopify that “are much earlier in their life cycle of a lot more opportunity”.
When The Australian Financial Review first interviewed WCM in 2017, the unique US fund with an impressive track record, was still a fan of Amazon but had turned its back on Apple two years previoulsy.
In May, WCM dumped another of the so-called FAANG stocks when it sold out of social media giant Facebook.
This, Mr Tringale said, was based on the team’s observations that Facebook was not improving its edge.
“We’ve seen engagement on the Facebook platform in a state of decline,” Mr Tringale said.
He pointed to a “strategic misstep” of prioritising user-generated content over news, which has lowered engagement numbers while raising concerns about leadership. Facebook has been embroiled in a series of scandals relating to data privacy and the ‘weaponisation’ of its platform by political movements.
“Culturally we’ve seen a lot of engineering and design talent leaving for other Silicon Valley firms, which is I think very alarming,” Mr Tringale said.
“It’s still a great business but we certainly don’t believe it’s getting stronger.”