Part of the Catalog and Mail Order Houses industry, Amazon (AMZN, Financial) is one of the most prominent and flourishing corporations of the American services sector. Headquartered in Seattle, Washington, the company was founded in 1994. Since then, the company has taken giant strides towards expansion and growth, becoming one of the most famous global online shopping destinations. The company operates in North America and in many countries across the globe.
The financial performance of the company, in the past 3 years, has been splendid. The revenues of the company have, during this period been continuously increasing. From $61,093 million in 2012, the revenues of the company increased to $88,988 million in 2014. In 2013, the rate of increase was 21.87% and in 2014 19.52%. The corresponding increase in Gross Profit was greater than that in sales. The company’s ability to generate revenues and earn profits both have increased, which is a great sign.
Since 2006, Quarter 1 of the fiscal year 2015 was the first time that Amazon’s overseas sales revenues dropped. The overseas revenues in Quarter 1 made 34.1% of the total sales of the company. A year earlier it was 39.9%. With Amazon investing in highly populous countries like China and India, its revenues in the subsequent quarters are expected to increase.
The area that needs special attention of Amazon’s management is Operating Expenses. They make almost 30% of the total sales revenues of the company and have been increasing at a proportionately greater rate than that at which its sales have increased. It caused the net income of the company to decrease by 187.96% in 2014. The net income of the company in 2014 was -$241 million.
What investors are more concerned with than profits is the ability of a company to generate cash from its business activities. Amazon’s ability to do so has increased during the past three fiscal years. The increase in its cash flows from operations in 2013 was 30.98% and in 2014, 24.97%. The net change in the company’s cash balance in 2014 was great, primarily due to its financing activities. Exchange rate fluctuation had an adverse effect on company earnings. It cost it $310 million.
Lately, Amazon, in a bid to diversify into the smartphone industry, launched its Fire Phone. The phone, though still on sale, has been an enormous failure. It could not compete with the leading smartphone manufacturers like Apple (AAPL) and Samsung. Despite not being able to attract customers towards buying the Fire Phone, Amazon’s management seems determined to continue the marketing campaign aggressively.
The current price of Amazon’s share is $422.87, which by the end of this year is expected to increase to $457.91. The beta value is greater than 1, which suggests that the stock’s volatility is greater than that of the market as a whole, although it still has the potential to earn investors substantial capital gains.
Amazon’s revenue in the preceding quarter was $22.21 billion. In the succeeding quarters, it is estimated to be $22.32 billion (Q2), $23.71 billion (Q3) and accumulatively $102.98 billion at its year end. Next year, the annual revenues of the company are expected to be $121.25 billion. How successful Amazon will be in convincing consumers to give its Fire Phone a try is hard to say. If the company does so successfully it will add a lot to its revenues and diversify its risks. The current growth trend of Amazon’s revenues will continue to persist in the coming years as Amazon is pursuing policies aimed at attracting new customers while retaining the current ones.
