Amazon.com Inc. (NASDAQ:AMZN) serves consumers through its retail websites and focus on selection, price and convenience. The company offers programs that enable sellers to sell their products on its website and their own branded websites and to fulfill orders through them, and programs that allow authors, musicians, filmmakers, application developers and others to publish and sell content.
The company designs its websites to enable millions of products to be sold by the company and by third parties across dozens of product categories. Customers access its websites directly and through its mobile websites and apps. It also manufactures and sells Kindle devices.
Performance Report Card
Over the past four years, revenue growth at Amazon has been explosive. Between 2009 and 2012, the company saw sales rise 149.3% from $24.5 billion to $61.1 billion. The primary driver behind this growth has been a rise in e-commerce ordering globally. Between 2009 and 2011 (the most recent year for which data is available), U.S. e-commerce grew by 64.7% from $155.2 billion to $255.6 billion. Globally, e-commerce sales totaled $763.2 billion and comprised an estimated 8% of total retail sales.
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- AMZN 15-Year Financial Data
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The year 2013 was a good one for this company. The share price moved more than 52% last year, from $257.31 per share to more than $398 per share.
Working Towards a Better Future
In order to grow a business, most companies (especially technology-based ones) tend to invest in R&D so that they can improve their products or services. This has been the goal of Amazon in recent years. Sure, management could have reported earnings of $3.3 billion (or $7.25 per share) in 2012 by eliminating R&D expenditures, but the company hopes that forgoing profits today will lead to healthier profits tomorrow.
From a longer term perspective, a strong catalyst for Amazon's business growth will come from it holding a large portion of market share in an industry that will continue to expand. The global e-commerce sales are growing by 20% every year. The U.S. e-commerce market is expected to increase 15% this year to $300.6 billion. The global e-commerce market is estimated to reach $1 trillion by 2016. As the company currently holds the largest percentage of the industry, it will surely benefit from the growing e-commerce market. Amazon's revenue is projected to grow 21% to $90 billion this year.
Amazon Web Services is adding newer services and features in an attempt to remain the leader in the cloud computing space. The company added more than 100 new services and now offers six Amazon Elastic Compute, dubbed Amazon EC2, cloud instances. This will enable the company to develop and gain new customer relationships. AWS is also launching an office in China, which should aid the company in gaining entry into the massive Chinese market.
The Trend Seems to Be Like
Innovation can be a powerful growth driver for your portfolio in the long term. A company like Amazon is positioned to win by leading technological change in retail, video and travel, respectively. The company is spending its money aggressively in areas like technology, content and infrastructure. Amazon has gone from an online bookstore to a major retailer selling almost anything, from diapers to electronics. The company has also expanded to other business areas with intriguing prospects like online content, hardware and cloud computing services.
Amazon continues to grow its share of the retail market, likely growing faster than its smaller rivals. It also continues to build a digital ecosystem that is now ripe with 27 million digital media items, including movies, shows, tunes, magazines, books, audiobooks, games and apps. In October 2013, the Seattle-based company announced it plans to hire 70,000 temporary workers at its fulfillment centers for the holidays, up 40% from the previous year.
India Connection (Launch in India)
For U.S. e-commerce companies, some of the most tantalizing expansion opportunities lie in India. India’s Department of Industrial Policy and Promotion published a report earlier in January weighing whether it should relax regulations for online retailing and has asked e-commerce companies to register their opinions by Jan. 30. U.S.-owned companies are pushing hard to change the rules, says Amit Agarwal, Amazon India’s vice president and country manager. U.S. companies have found a way to do business while they await the Indian government’s decision. They’re allowed to deliver and store goods on behalf of Indian merchants and are building local delivery and storage businesses and investing in e-commerce startups.
Amazon established an Indian online marketplace in June where merchants can hawk their wares and pay the company fees to store and deliver their goods. More than 2,300 sellers have signed up, listing 440,000 products including books, electronics, diapers and jewelry, says Agarwal. That’s more than Indian e-commerce pioneer Flipkart. Amazon said on Jan. 20 that it plans to open a 150,000-square-foot warehouse in Bangalore, matching a facility it maintains in Mumbai, to speed deliveries.
Amazon is a dynamic company with reach into multiple industries. Amazon is clearly the most disruptive force in the retail industry over the last years. Its cost advantages, innovative drive, scale and customer focus have allowed the online retailer to gain participation in different categories in a relatively short period of time. This Seattle-based Fortune 500 company will certainly make headway in the coming years. Amazon is trading near an all-time high following an upbeat holiday shopping season, dominant market position and improving margins. This trend is expected to continue further and it is expected to create greater shareholder returns.
The company continues to grow at almost twice the growth rate of e-commerce, which increased 11% during the holiday quarter. In addition, Amazon disclosed that it now has more than 20 million Prime members. Amazon can generate substantial revenue if the company can convert Amazon Prime trial customers into regular paying customers.
The company is very well-positioned in the long run to grow in multiple sectors. The company is growing at twice the rate of overall e-commerce, and will continue to benefit from its immense scale — that gives consumers broad selection, good pricing and convenience.