In July 2021, BBH US Large Cap Equity Composite (“US Large Cap Equity” or “the Strategy”) rose by 4.18%, which compared to a gain of 2.38% for the S&P 500 Index. One of our top performers in the month was Oracle and our largest detractor was Amazon.
Oracle’s fiscal year 2021 results reported in June continued to show progress against the Company’s three primary initiatives of transitioning on-premises ERP customers to cloud-hosted environments, proving the performance and cost efficiency of Autonomous Database, and gaining market acceptance for Oracle Cloud Infrastructure products. Recent strength in the share price suggests that investors have applauded greater consistency in the Company’s consolidated financial metrics and have gained confidence in management’s continued execution on its core initiatives. Oracle’s Fusion and Netsuite ERP products are each growing faster than 30% annually, which indicates broader customer adoption of cloud-based delivery. ERP systems are among the most critical and embedded applications within enterprise technology stacks, and we view the recent growth as evidence that customers are overcoming organizational inertia favoring legacy solutions, setting up a sustainable opportunity for continued replacement activity benefiting Oracle.
Amazon reported solid Q2 results in July in which consolidated revenue grew 27.2% and operating profit grew 32.8%. The quarter marked the lapping of the pandemic-driven e-commerce surge in 2020, which precipitated a deceleration of retail revenue growth rates and consolidated operating margin expansion relative to recent quarters. While investors appeared disappointed by the results and Amazon’s outlook for next quarter, we had anticipated that sales growth would normalize once economies reopened and operating margins would contract as the Company resumed its aggressive investments to build the necessary fulfillment capacity to serve ongoing secular growth in e-commerce demand. Encouragingly, management noted that despite the broader slowdown in retail spending, Prime members are more engaged with the platform today than they were pre-pandemic. Furthermore, the negative market reaction overlooked the fact that the growth rates of AWS and the advertising business accelerated in the quarter, which is a very positive development given the attractive margin profiles of these businesses and their competitively advantaged positions in growing markets. We believe Amazon’s key businesses remain supported by strong secular growth drivers and that the Company is well positioned to take share from legacy formats, technologies, and competitors.