Quite a morning for our long-held Revolutionary Investments. Intel, which we bought a few months ago when it was in the $30s, reported nearly 50% growth in the cloud business. Amazon’s cloud revenues were through the roof too. Microsoft, which we don’t own, also saw explosive cloud growth. Do you know anybody who wrote a book predicting the trillion dollar cloud economy years before it developed into reality? Oh, that’s right, six years ago, we wrote “30 Stocks for the Cloud Revolution” ;).
Let’s hit on Amazon one more time though. Amazon’s reports earnings and the report was what many, including Jim Cramer, are actually calling “the best quarter ever.” We’ve made a lot of money owning Amazon and there’s a lot of insights we can glean looking back at our Amazon analysis over the years:
Now to Amazon. There’s lots I could highlight, how Amazon is disrupting the entire publishing value chain, that they have a seat in your living room by offering free streaming content to Prime subscribers or how they’re becoming the de facto online shopping jumpoff. But what I really care about is Amazon As Platform (or AAP). My vision of what Amazon is trying to do is simple: they are trying to be the platform for all things e-commerce. Think of Amazon as an operating system and every brand or individual selling through Amazon as an app.
Amazon is building their video offerings to be a genuine competitor to the ‘dumb’ cable and satellite networks. By allowing their Instant Video service to stream on set-top boxes like Roku, Amazon is piggybacking on an existing user base and wifi networks to win living room and mobile ‘shelf space’. The last 50 years of how consumers interact with TV won’t be how they do it in the next 50, and Amazon is making their video platform ready for a huge upcoming slate of social media video apps, like Shelby. So without the massive capital investments that cable companies have to make to just stay in business, Amazon is creating a rival platform that can aggregate and sort video and deliver it to your living room or your smartphone.
Amazon first disrupted the book retailer industry long before it became a place to buy tech gadgets, clothes, rubber bouncy balls, and garden supplies and that was long before it became a place to buy/subscribe to music, TV and movies, and cloud services.
And over the years, as Amazon Prime has caught on with its free two-day shipping and $3.99 over night shipping and charging no sales tax (or income tax for that matter).
Of course, let’s be clear that while I think it’s great as a shareholder that Amazon’s able to provide all these services and sell me all these retail goods at little or no tax consequence. But as a citizen of this country, it makes me furious to no end that Amazon is able to use our roads, courts and other public services without having to pay much if anything for them. Amazon’s ability to avoid sales tax makes it an unlevel playing field against most other retailers and tremendously unfair to small local retailers around the country who do pay sales tax, income tax and other taxes to support our public services and infrastructure. Again though, as an investor, it’s clear that being able to avoid taxes and riding that unlevel playing field has created some self-fulfilling cycles that benefit Amazon.
I still own my Google and Apple and a couple other of the best platform companies on the planet, including Amazon (and Facebook, by the way, collectively, what I’ve called the Four Horsemen of Tech here on Marketwatch for many years now). Amazon’s a big platform company these days. Let me list some of the ways.
Amazon’s Prime and Prime Video services are probably the single closest competitor to Netflix right now, and Prime Video is just a fraction of the size giving it marketshare to take directly from Netflix. And the fact that it comes as part of the broader Amazon Prime service makes it a practically free and still very real alternative to cable/satellite TV.
Amazon Echo is becoming a platform in its own right and has stolen the promise of what Siri was once supposed to be. People actually talk to it and the reviews say it works most of the time quite well and people even listen to music on it.
Amazon Web Services is yet another great example of how Bezos has this company focused on building platforms. Millions of websites and apps and corporate networks are being built on the AWS platform and those businesses will essentially be locked into the AWS platform for decades to come.
Oh yeah, as for Amazon’s primary of being a retailer? Well, Amazon’s dominance as the retailer of the US is stronger than ever.
So, Cody back in real-time here April 27, 2018. Earlier this week, I’d even noted that I thought Amazon could grow their earnings ten-fold. Well, with them reporting 3x as much earnings as they were expected to in the last 90 days, I think it’s much more clear today that it could happen.
On the other hand, as I keep reminding you guys, so many of our stocks have gone up so much over the last few years that their valuations are stretched. And Amazon is certainly included in that bunch.
And frankly, now that so much of Wall Street has figured out what Amazon’s been doing this whole time (they’ve figured it out now that it’s reality LOL!), it’s probably a bit of another bearish factor here.
So I’m going to continue to hold my long-held Amazon common stock steady along with most of our other long-held stocks. But I’m going to go ahead and nibble a few more put options this morning on the QQQ. Just adding a few puts dated out into June with strike prices around $158 or lower or so. If you don’t know how to or don’t understand or aren’t comfortable trading puts, then don’t worry about it. Just make sure you’ve got some cash on hand and aren’t chasing these stocks blindly. I’m not bearish overall, but I continue to think this earnings season is playing out as a sell-the-news kind of reaction and the recently spiked volatility in the stock markets also keep me cautious — as does the aforementioned stretched valuations of our stocks.
Oh, and here’s one more article I found when I was searching for my history of writing about Amazon. Amazon was at $30 and Apple was at $3 when I wrote this article:
Nov 1, 2004 Cody Willard
Everyone else in the music world is left trying to catch up to Apple.
See why I stick with long-term Revolution Investing, platform, amazing companies. Let’s find another Apple at $3 and Amazon at $30 now!