Nick Sleep's Amazon Analysis

A story about how investor Nick Sleep discovered Amazon's true value by deeply analyzing their financial statements and annual reports.

"Nick and his partner Zach would come into their office and sit and read annual report after annual report until they were blue in the face. That exercise led them to Amazon's annual report.

I've been a customer of Amazon, known Amazon for a long time, but every time I would take a cursory glance at Amazon it looked very expensive on an earnings basis. The reason it looked expensive is they were investing so far ahead of the curve on growth that what should have been categorized as capex was categorized as expenses. The US government was really funding their growth because there were no taxes being collected.

What Nick and Zach were able to do, because they were just sitting in their office with no distractions reading year after year of Bezos' letters, was understand that the business had very high returns on capital. Bezos was throwing a lot of things against the wall, but they were very low risk bets - if any single bet didn't work, it wouldn't sink the company. For example, one of the bets they made was AWS, which became huge. They didn't know it was going to become as big as it did. They also made a bet on Amazon Fire which didn't work.

Nick and Zach realized here was a very gifted capital allocator who understood all the different facets of building a team and going after different markets. He actually disrupted multiple industries. They placed a bet on Amazon and because Amazon was doing so well, it became a larger and larger portion of their fund."