Amazon.com Inc.'s (AMZN, Financial) secret of success is the invention of "crazy things," according to its founder and CEO Jeff Bezos.
"Amazon is what it is because of invention. We do crazy things together and then make them normal. We pioneered customer reviews, 1-Click, personalized recommendations, Prime's insanely-fast shipping, Just Walk Out shopping, the Climate Pledge, Kindle, Alexa, marketplace, infrastructure cloud computing, Career Choice, and much more. If you do it right, a few years after a surprising invention, the new thing has become normal. People yawn. That yawn is the greatest compliment an inventor can receive. When you look at our financial results, what you're actually seeing are the long-run cumulative results of invention."
Bezos made this comment following the release of the company's fourth-quarter results last week, which topped expectations. The online retail giant posted net sales of $125.5 billion and earnings of $14.09 per share, well above the consensus estimates of $119.7 billion in net sales and earnings per share of $7.34.
Meanwhile, the company's economic profit, the difference between the return of the invested capital and the cost of raising it, reached 4.95%, though it lags behind other technology giants. That's a big improvement from the previous quarter, when the economic profit was 3.41%.
Rising economic profit is an indication that Amazon creates more value as it grows. It also suggests the company's competitive advantage has been strengthened.
| Company | ROIC | WACC | Economic Profit (ROIC-WACC) |
| Amazon | 12.40% | 7.45% | 4.95% |
| Microsoft | 28.10% | 5.89% | 22.21% |
| 20.93% | 7.26% | 13.67% |
Source: Compiled from Gurufocus on Feb. 8, 2021
Amazon's recent results got a big boost from the Covid-19 pandemic, which pushed a new cohort of shoppers online.
"Since the onset of the pandemic, we've started seeing entirely new segments of consumers (the fastest growing e-commerce segment in 2020 was 65 and older) who in the past were more comfortable taking a 15-minute drive to a store, be forced to give online shopping a try," Ryan Rommelfanger, co-founder, and chief creative officer at Envoy, a design and innovation consultancy agency, said.
Then there's execution. Accoridng to Mousumi Behari, Digital Strategy Practice Lead at Avionos, "Amazon brilliantly executed Amazon Prime Day in October close to the holiday season, which boosted their revenue."
Will growth continue at the same pace in the post-pandemic era? It depends on whether Amazon will continue to do crazy things that become normal, pursuing new business opportunities by disrupting traditional sectors.
"For 2021, I predict Amazon will continue forward with an eye for expansion with Amazon Pharmacy, AWS, and their foray into more live events, testing out Amazon as an experiential platform as well," Behari said. "Currently, Amazon still faces fierce competition in the grocery department, so we may see new features added to Amazon Fresh to compete with the likes of Instacart, Walmart, and Target."
The bottom line: Doing crazy things has been fueling Amazon's growth since before the Covid-19 pandemic and will continue to do so after it is over, though at moderate rates as competition in some of the business segments intensifies.
Disclosure: No positions.
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