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Jim Cramer's Action Alerts PLUS

Amazon's Bezos Releases Annual Letter

By Jim Cramer and the AAP Team | 2018-04-18 19:09:34.0
Stocks in Focus: AMZN

After the bell on Wednesday, Amazon (AMZN) CEO Jeff Bezos published his annual letter to shareholders. Let's parse through the commentary.

In Bezos' opening remarks, he highlighted Amazon's recent accomplishment of receiving top honors in the American Customer Satisfaction Index. Amazon has now been #1 in the rankings for eight consecutive years. Similarly, in the UK Customer Satisfaction Index, Amazon ranked #1 in that survey for the 5th year in a row. So we know the customers are happy (hard to argue with that), but what about the employees? Well, Bezos noted that Amazon placed first on LinkedIn's 2018 Top Companies list, and for the third year in a row, Amazon ranked #1 in the Harris Poll's annual Reputation Quotient. The satisfaction of customers and employees alike is a true testament to the exemplary business model and culture that Bezos has created.

Next, Bezos' penned what he and his team have learned so far that has helped the company maintain a high standard inside the organization. In short, he believes that high standards are teachable and domain specific. To achieve these standards, one must be able to be recognize it in that domain with scope and offer realistic beliefs.

We emphasized culture in the beginning of our Alert (we know everyone wants to know about the milestones) because we want members to know that despite the "Death Star" label and the tweets, Amazon's commitment to high standard is a major reason why the company has been so successful in what they do. Bezos believes it leads to better products and services, it draws people in, and perhaps most importantly, it's fun!

Now, on to milestones.

The biggest news in the release was the Amazon Prime membership number, which has officially surpassed the 100 million member mark. The importance of this cannot be understated; as we have noted previously, Prime provides for a transparent recurring revenue stream that keeps buyers coming back to the platform as shipping costs already paid for. Additionally, we believe that this provides a lever for increased revenue growth should the company choose to raise prices in the future, something we think would be met with little resistance in the marketplace when considering that in addition to free shipping the ~$100/year membership fee also provides for service such as Prime Video. On that note, Prime Video was cited as a key fact in driving Prime membership and retention. We believe this to be a prime example of the Amazon Flywheel at work, in which one segment accelerates growth in every other segment (Video bringing people into the Prime fold which in turn increases use of the Marketplace and so on).

Of course there is also Amazon Web Services, one of the main pillars in our investment thesis. This high-margin business has reached a $20 billion revenue run-rate and recently accelerated. We continue to believe that public cloud adoption will only increase in coming years and view the industry as being in the very early innings, with Amazon leading the way.

As for Alexa, the company's smart assistant, the platform continues to see "extremely strong adoption by other companies and developers that want to create their own experiences with Alexa." The most exciting factor on the Alexa front would have to be that Amazon has been able to "dramatically reduce the amount of time required to teach Alexa new languages," allowing the platform to penetrate deeper into international markets such as India and Japan. While on the international front, we also note that according to the release, " is the fastest growing marketplace in India, and the most visited site on both desktop and mobile, according to comScore and SimilarWeb." Compounding this, the company's mobile app was the most downloaded shopping app in India in 2017 according to App Annie. In fact, because of the popularity of Amazon's platform, "Prime added more members in India in its first year than any previous geography in Amazon's history."

And that's not all. Bezos also discusses milestones in the Marketplace, in their popular devices like the Echo and Fire TV stick, Amazon Music, Fashion, Amazon Go, and Whole Foods!

Altogether, the shareholder letter was a dynamic read about how much the company has recently accomplished. And this is not all for Amazon. Their desire to perform at the highest of standards and create the most value possible for their customers, employees, and shareholders keeps everyone engaged and on the edge of their seat for whatever new innovation and initiative they roll out next.

For a full read of Jeff Bezos' letter to shareholders, please see here.

At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long AMZN.

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Action Alerts PLUS Holdings

Holdings 1

Stocks we would buy right now

Symbol % Portfolio
AAPL 0.02919377916746266 Telecommunications Equipment
DRI 0.009998602022555893 Restaurants
GOOGL 0.027951120173520007 Internet Software/Services
JPM 0.024354883536225717 Financial Conglomerates
PEP 0.019861305042577045 Beverages: Non-Alcoholic
STZ 0.03232613978326337 Beverages: Alcoholic
UNH 0.017555477704487617 Managed Health Care
XEC 0.02530645503553146 Oil & Gas Production
Holdings 2

Stocks we would buy on a pullback

Symbol % Portfolio
AVGO 0.013901242640428505 Semiconductors
C 0.02433223370246993 Financial Conglomerates
DHR 0.03612091520923341 Medical Specialties
DWDP 0.03222087375261146 Chemicals: Major Diversified
FB 0.029341188741250343 Internet Software/Services
ITW 0.020715315167795352 Industrial Machinery
MSFT 0.03580901585915368 Packaged Software
NVDA 0.01292154450330307 Semiconductors
SLB 0.03395321472617929 Oilfield Services/Equipment
Holdings 3

Stocks we would sell on strength

Symbol % Portfolio
AGN 0.006148130284071616 Pharmaceuticals: Generic
MMP 0.01725843070441169 Oil & Gas Pipelines