Amazon: Jeff Bezos Is a Genius

NEW YORK ( TheStreet) -- Like Jim Cramer often says, if you own a stock or are thinking about buying one, you need to listen to the company's conference call. There's really no excuse not to. Practically every company makes a replay of their call available on their investor relations Web site via Webcast. You can easily find transcripts of most calls, for free, online. That's where the magic happens.

Jeff Bezos, chairman and CEO of Amazon.com, introduces the Kindle Fire.

In case you weren't around for Amazon's ( AMZN) call on Thursday, I will clue you in on the most important part. We could very easily title this excerpt "Jeff Bezos Is a Genius." Cue CFO Thomas Szkutak from Thursday's call:
In terms of the Kindle Fire, we are pleased with the growth that we're seeing and customers are buying a lot of content. And you're seeing that when you look at particularly in North America. When you look at our North American media growth from Q4 to Q1, you're seeing that accelerate. And that's certainly a big part of it. And so we're very pleased with what's happening, and we're going to continue to add more and more content for customers and across all of our digital categories. And we think we have a great value proposition for customers today, and we're going to continue to make that better over time.

Kindle Fire is doing exactly what Jeff Bezos intended for it to do. It is not competing with Apple's ( AAPL) iPad. If Tim Cook does what Steve Jobs considered unthinkable and produces a mini-iPad, I hope Jobs's wife pleads with the board to fire Cook. Steve would have wanted that. Under Jobs, Apple never reacted to perceived threats. And, in this case, they would be reacting to what is the farthest thing from a threat.

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When Bezos conceived Kindle Fire he did it without Apple or any other gadget maker in mind. Kindle Fire was never anything more than another tool to get Amazon customers to spend more money on everything from stuff to content. Kindle Fire is not a 7-inch tablet; it's a 7-inch credit card. Bezos must sit back and laugh when he hears mini-iPad rumors. Talk about a wild-goose chase.

I bought a Kindle Fire for Christmas. I liked it so much that I bought one for my wife for Valentine's Day. It's a good thing I have a fair bit of disposable income because, if I did not, I would be broke by now. The same phenomenon operates when you buy things on that "tablet" as when you pull out a credit card to make a purchase.

Some people can control themselves. They recognize that they're spending actual money when they swipe a credit card instead of a debit card. These are the same folks who pay their balance in full every month. That's certainly not the majority of Americans, rich or poor.

When you click "Buy" on that Kindle Fire, Amazon makes it so that you somehow lose sight of what's actually taking place in the moment. You do not put two and two together and make the connection that this purchase will result in the removal of money from your bank account or a charge on your credit. Buying a book, an app, a movie, a song on your Kindle Fire puts you through the same non-process as doing a one-click buy at AMZN's Web site. You click and you have bought the item. Done deal. Whenever you get around to checking your email, there's a receipt for the purchase waiting in your inbox.

I'm convinced that Kindle Fire owners went through this non-process millions of times in Q1. They received the 7-inch credit card for Christmas. They got to know it before the New Year. And then as post-holiday depression and the need for escape set in, they started buying stuff.

Bezos also had the genius idea of giving all Kindle Fire owners one month of Amazon Prime for free. As the end of that 30-day period nears, you get a reminder to sign-up for the year for $79. As an interested party, I can only imagine how many Prime members Amazon added in Q1; unfortunately the company does not release those numbers.

There was so much hysteria over Amazon reportedly "taking a loss" on Kindle Fire sales. Like this fairy tale of a competition with Apple, that's was little more than a meme that took on an unfounded life of its own. If Amazon did take a loss on the device, the Prime membership and the buying Prime encourages more than make up for it.

When Amazon reports earnings you need to look at one number: sales, aka revenue.

From the company's Q1 earnings press release:
Net sales increased 34% to $13.18 billion in the first quarter, compared with $9.86 billion in first quarter 2011 . . .
North America segment sales . . . were $7.43 billion, up 36% from first quarter 2011 . . .
International segment sales . . . were $5.76 billion, up 31% from first quarter 2011 . . .
Worldwide Media sales grew 19% to $4.71 billion . . .
Worldwide Electronics and Other General Merchandise sales grew 43% to $7.97 billion . . .

Short-term, and warranted, pressure is what makes things like margins, cash flow and guidance look "bad," though not nearly as bad as expected in many cases.

Amazon continues to reinvest in its business. Szkutak noted on the call that the company still intends to open 13 fulfillment centers in 2012. The company spent $386 million in Q1. The CFO explains:
The increase in capital expenditures reflects additional investments in support of continued business growth, consisting of investments in technology infrastructure, including the Amazon Web Services and additional capacity to support our fulfillment operations. . . .
We expect capital expenditures including capitalized software development to be approximately $0.8 billion to $0.9 billion. These anticipated investments are driven primarily by our expectations of continued business growth, consisting of investments in technology infrastructure, including Amazon Web Services and additional capacity to support our fulfillment operations.

When Jeff Bezos decides it's time to throttle back on spending, $223, the price AMZN topped out at in post-earnings after-market trading will be a distant memory. In fact, at that point we'll probably talk more about the prospects of AMZN hitting $1,000 per share than AAPL.
At the time of publication, the author had no positions in any of the stocks mentioned.

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