Bill Ackman's Amazon Investment: Why He Sold Canadian Pacific

Bill Ackman's Portfolio Strategy

• 💡 Bill Ackman, CEO of Pershing Square Capital Management, operates a concentrated portfolio and is typically 100% invested.
• 🎯 To acquire a new position, Ackman sold off an existing holding, Canadian Pacific, to fund the purchase.

Reasons for Selling Canadian Pacific

• ⚠️ Canadian Pacific's revenue jump in 2023 was due to a merger with Kansas City Southern, which significantly increased its debt levels from $8.4 billion to over $18.5 billion.
• 📈 The company also diluted shareholders by issuing new shares, increasing the count from 666 million to over 930 million.
• 📉 Shareholder returns were impacted, with buybacks disabled in 2022 and a very low dividend yield of less than 1%.
• ⚙️ Despite strong free cash flow, the company faces pressure from its debt pile, limited growth acceleration, and potential headwinds from tariff pressure.

Amazon's Financial Performance

• 🚀 Amazon continues to demonstrate high single-digit revenue growth, even with annual revenues reaching $650 billion.
• 💰 The company's profitability is exploding, with cash from operations at $114 billion in the latest 12 months, projected to reach over $200 billion by December 2027.
• ✅ Amazon's long-term debt of less than $64 billion is not a concern, given its massive cash generation.

Key Growth Drivers for Amazon

• 📊 Amazon's advertising division is growing rapidly, reaching nearly $60 billion in the latest 12 months with 19% year-over-year growth.
• 🔑 Subscription services, including Amazon Prime and Prime Video, provide recurring revenue and are considered recession-proof.
• ☁️ AWS (Amazon Web Services) revenue is reaccelerating, showing almost 20% year-over-year growth and generating $112 billion in the latest 12 months.
• 📈 Operating margins for the retail business are increasing significantly due to post-COVID investments in fulfillment and logistics.

Investment Outlook and Personal Portfolio

• 🎯 The investment thesis projects operating cash flow margin expansion from 18% to 22% due to robotics and cost optimization.
• 💰 Amazon is estimated to have an 83% upside potential over the next five years, equating to a 13% compound annual growth rate (CAGR).
• 💡 The speaker aggressively bought Amazon shares at $160, and it currently represents the largest position in their public YouTube portfolio at almost 20%.
• 📈 The speaker expects Amazon to reach $377 per share by 2029 from its current $266 per share price.