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Amazon Is Primed for Growth

May 14, 2014 | About:
abirk

abirk

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Amazon.com Inc. (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.

Amazon serves its customers through its retail websites and focuses on selection, price, and convenience. The company also manufactures and sells Kindle devices. Amazon offers programs that enable sellers to sell their products on the company’s websites, including the sellers’ own branded websites, and fulfill orders through them. Amazon also provides platforms that allow authors, musicians, filmmakers, app developers and others to publish and sell content. Online commerce has been on the rise because of the convenience, efficiency and relatively low prices offered.

Performance Recently

In the last quarter, Amazon's revenue grew 23% year over year to $19.7 billion, and operating income decreased 19% year over year to $146 million. The company has more than 244 million active customers worldwide, and a larger customer base will fuel Amazon's future revenue growth very well.

Amazon continues to grow faster in North America relative to international markets. In the last quarter, Amazon's North American revenue increased 26% year over year to $11.9 billion, and the company's international revenue increased 18% year over year to $7.9 billion. However, the company is investing heavily overseas and has a big untapped market opportunity, which should result in continued growth going forward.

Amazon's gross margins stood at 28.8% in the last quarter, which is a notable increase from prior periods. This transition was expected from the company, as it earns more revenue from higher-margin segments consisting of third-party business and Amazon Web Services. In the future, the company should see expanding margins as those higher-margin businesses are growing faster than Amazon's retail business.

Tying Up with Twitter

Amazon.com has tied up with Twitter (TWTR) to help its users order products through replying to product related tweets. Under the new facility, Twitter users can place a product in their cart by simply replying to the Amazon related product tweets with hashtag #AmazonCart. The users will have to first link their Twitter account with their Amazon.com account and once linked, users can start placing products in their cart. The users can later make the final purchases listed in their cart. British Twitter users, who are not accustomed to the word "cart," have the option to reply tweet with hashtag #AmazonBasket in order to have their orders placed.

This is one of the several ways in which Amazon.com is exploring to increase its online reach. While there is no official information available about the terms of the tie-up between Amazon and Twitter, it is believed that Amazon can eventually step up its spending on Twitter ads. An Amazon.com representative, Julie Law commented that their goal is not to focus on competition, but rather be laser focused on facilitating its customers with the best discovery and shopping experience on Twitter.

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.

To End

Amazon is a dynamic company with reach into multiple industries. Amazon is clearly the most disruptive force in the retail industry over recent 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 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.


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