Amazon (AMZN, Financial) with its headquartered in Seattle, Unites States is earth’s largest online retailing giant acquiring its name from one of the largest rivers in the world, the Amazon. Having established its software developing centers in almost major continents, Amazon has developed a customer base of around 30 million people over the last decade.
The major source of revenue for Amazon.com is from charging a small percentage of the sale price for each item that is sold through its website. Additionally, allowing companies to advertise their products by paying to be listed as featured products also brings in some good income.
Broadly speaking, the products and services could be segregated as retail goods, consumer electronics, digital content, Amazon Instant video, Amazon Prime, private labels and exclusive marketing arrangements, computing services, content production, Amazon Local, Amazon wireless, Amazon Fresh and many more.
Business Analysis
The total sales of products & services increased by 20% year over year to $20.82 billion in the wake of establishing centers full of products closer to customers for faster delivery and reduced shipping costs, this customer friendly policy plunged warehousing costs.
Among other KFI’s(Key Financial Indicators) , net earnings and the basic EPS showed a phenomenal decline by $0.95, mainly due to much talked about stand of fuelling revenue growth at the cost of profits. Despite of strong sales growth in the third quarter, operating costs have increased due to high end investment in cloud computing & digital content. Such investment can certainly yield better results as Amazon is laying an strong foundation for future growth. Definitely, subscriptions have increased and a few analysts rate the stock as buy as against neutral outlook of many analysts.
Prospect Analysis
Analysts’ estimate of Amazon’s revenue is $29.76 billion for the current quarter ending in December 2014. EPS shows a declining trend. Going forward, the profitability shall be aided by margin improvement due to increased popularity of the content and web services. Though the past five years portray a negative growth, the future looks bright with a positive estimated growth rate of 37% in the next five years as against the industry standard of 16.3%, this goes on to show a high growth of the company in future.
The company plans to add more than 5,000 full-time jobs to meet increasing demand for products and to open five more facilities this year, after adding 20 last year. The company’s expansion spree and enhanced customer friendly infrastructural modifications will not only create a large customer pool but also seek to improve customer retention.
Competitors’ Analysis
Among its top competitors are e-Bay and Overstock.com.
Overstock.com, though a much smaller competition lowered the price on numerous book titles to at least 10% below Amazon’s prices; the move has been reported to be advantageous and is likely to sweep away a few of Amazon’s readers.
E bay is an another a multi-billion dollar business operating over 30 countries, reported a strong 12% year over year revenue growth & 3% income growth in the third quarter of 2014 as compared to Q3 2013 giving a headstrong tough competition to Amazon.com. Evidently, e-bay is leading the market by driving innovation in commerce experiences for both merchants and consumers across borders.
Conclusion
The third quarter of 2014 has been a mixed dish for investors where we witnessed revenue growth and income decline. In the current scenario of expansion, Amazon might show a notable growth rate in the near future as the current policy of capital expenditure on the “doing-well” segments will reap generous benefits. Overall, the company’s profitability shall increase, as the today’s investment will bear future cash flows.
Margin improvement and recovering the costs paired with efficient innovation will set the company back on track despite its gloomy third quarter results.
