Amazon Company Analysis

In the current world, businesses are rapidly evolving and intensely competitive. Online retailers such as Amazon are now facing stiff competition from physical-world retailers, vendors, distributors, manufacturers, and publishers. Considered as one of the largest pioneers in online retailing, Amazon.com Inc opened its virtual doors on the web on July 1995 as the popularity of the internet and the World Wide Web swept through the world. Today, Amazon.com Inc. is known as one of the largest internet retailers in the world. The retailer engages in the provision of online retail shopping services and operates through North America, International, and the Amazon Web Services (Reuters, n.d). Importantly noted, the North America segment deals with retail consumer products, subscriptions, and sales placed through their North-America dedicated websites. On the other hand, the international segment includes retail sales of consumer products from international websites, which consists www.amazon.com.au, www.amazon.com.br, www.amazon.cn, www.amazon.fr, www.amazon.de, www.amazon.in, www.amazon.it, www.amazon.co.jp, www.amazon.nl, www.amazon.es and www.amazon.co.uk. The international segment also includes sales from the international websites to their clients in the United States, Mexico, and Canada. The other segment, which is the AWS, is focused on electronic sales, storage, database, and startup services for start-up businesses, enterprises, and government and academic institutions. Through their services, which include database offering, publishing, fulfillment, digital content subscription, advertising, and branded credit card, the company is focused on selection, price, and convenience to serve their clients effectively. The company was founded in 1994, incorporated on May 28, 1996; the company has its headquarters in Seattle, Washington DC.

Company Governance

In 1997, Amazon passed several milestones and acknowledged the importance of executing their corporate governance well to create real value for their clients and a lasting franchise established in even larger markets. In light of this, they passed various practices and practices to act as a guideline in corporate governance and help balance the interests of the company’s stakeholders, management, suppliers, financiers, and customers. Within corporate guidelines, they first acknowledged that the fundamental measure of the company’s success revolves around the long-term shareholder value (Amazon, n.d). The value is a direct result of their ability to extend and solidify their market leadership position, which is expected to translate to higher market share, increased revenue, and higher capital velocity. The decisions of the organization should always reflect this focus and must continually invest to expand and leverage their client base, brand, and infrastructure in a bid to establish a lasting franchise. The company agreed to focus persistently on their customers by making investment decisions aimed at long-term leadership considerations. The company also decided to continually evaluate their programs and their effectiveness, make bold investment decisions, always choose cash flows over optimizing their GAAP accounting and still keep open communication about the organizational strategies. Amazon also focused on working hard towards wise spending and maintaining a lean culture, balancing focus on growth with long-term profitability, and hiring and retaining versatile and talented employees. The other practice that the organization passed was obsessing over their customers. From the beginning, the company set to focus on offering compelling value to their clients by offering them something unique; books. Along with that, the company committed to expanding their business infrastructure to support increased traffic, sales, and service levels. Consistent with the 1997 message to shareholders, the company’s emphasis has been focused on the long-term success of the organization, and this has affected the way they make decisions and weight tradeoffs. In this context, the company commits to focus consistently on their customers, make bold investment decisions, while considering long-term considerations as opposed to short-term profits.

Board structure

Source. Wall Street Journal

CEO background and track record

Jeffrey P. Bezos founded Amazon.com Inc. in 1994 and became its Chief Executive Officer a position he has held since May 1996 (Bloomberg, 2017). Previously, he held the position of Chairman from 1994 and later President since October 2000. Jeffrey Bezos is also the founder of Bezos Expenditions LLC and principal advisor at A9.com. Before forming Amazon, Jeffrey worked at the D.E. Shaw & Co in the department of computer science and finance and helped build one of the most sophisticated quantitative hedge funds. He also led the development of computer systems that managed more than $250 billion assets for bankers Trust Company. Bezos has also served as the Director of Drugstore.com Inc from August 1988 to June 10, 2004. From the beginning, Mr. Bezos has always been interested in the computer revolution. He has B.S. in Electrical Engineering and Computer Science from the Princeton University.

Organizational chart

Amazon.com Inc. organizational structure is hierarchical. The senior management team includes two CEOs, three senior vice presidents, and one international controller responsible for overseeing critical business operations and reports directly to Amazon CEO.

Source: Research Methodology

Company operations

Since its inception in 1994, Amazon has continuously set their focus on finding new opportunities to serve existing and new clients, through new ways, and new business models. The company has demonstrated the ability to launch and run new business models, while concurrently gaining value from existing ones. As an online retail giant, Amazon has achieved and maintained its dominance by deploying limitless inventory, convenience, and affordable products. Currently, the company’s product range can be classified into 34 categories, which is one of the characteristics that sets it apart from its competitors and a critical source of its competitiveness (Dages, Li, & Moore, 2016). Virtually, Amazon has three business operations models. The first one includes selling its inventory, management of customer relations, and the supply chain through their website. The second model involves acting on behalf of other companies, allowing them to sell their products through their website. The third one is the e-commerce solutions provided through website design and web hosting services to consumers. Consequently, in order to meet their consumer demand, Amazon predicts and optimizes their supply chain through the Supply Chain Optimization software. The software is integrated into their website and ensures fast shipping process, ensuring efficient product delivery to the clients. Another thing, in order to minimize operational cost, the company uses cross-docking shipment, which ensures high activity at a lower cost. Amazon also has a customer fulfillment networking strategy designed to supplement their gross profit. The company achieves this by purchasing books from the publisher, without involving the middlemen, which boosts their profits. Additionally, Amazon has leveraged technology to acquire and apply customer information. The exercise allows the company to analyze the consumer past buying behavior and customize their experience to offer products suited to their preferences. Furthermore, by leveraging data, they engage buyers and sellers through reviews, which are likely to attract potential clients to make a purchase. In addition to the above, Amazon has differentiated itself from other retailers, by creating an extensive logistical network and hassle-free order fulfillment process. By doing this, the company sets itself apart from other competitors, placing it on the level of brick-and-mortar.

Products

Virtually, the company gets purchases for resale from vendors and third-party sellers. Through their subsidiary, the Whole Foods Market offers healthy and organic foods across its stores (Reuters, n.d). Other products offered include a wide range of organic food products such as whole trade bananas, organic avocados, brown eggs, baby kale and lettuce, and farmed salmon and tilapia among others. Similarly, the Amazon whole food market and private label products contain 365 everyday value, whole foods, paws and catch available from Amazon.com, Amazon Fresh, Prime Now and Pantry. The company also offers Amazon Lockers available in select stores. Usually, customers order for shipment from www.Amazon.com to their local Whole Foods Market store. Along with that, the company through its websites enables hundreds of millions of product categories to be sold to customers all over the world including by third-party sellers. Amazon also manufactures and sells electronics such as Kindle e-readers, fire tablets, fire TVs, and Echo. With Kindle Direct Publishing, the online service allows independent authors and publishers to sell their books in the Kindle Store. Consequently, the company has an annual membership that enables access to unlimited instant streaming of movies and television episodes.

Geographical Penetration

Amazon.com is an international e-commerce company specializing in online retail, computing services, electronics, digital content, and local services such as groceries. In April 1998, the company acquired three internet companies based in the UK and Germany and in October 1998, they re-launched two of these businesses under the Amazon.com Inc. brand.  According to recent industry reports, the company is the leading e-retailer in the United States with more than $136 billion in net sales as at 2016 (Statista, n.d). Consequently, in 2016, the company reported having more than 310 million active customer account all over the world. As a global e-commerce, giant Amazon is set on growing their geographic segment. In the United States, it is estimated that the company’s Prime membership covers around three in four U.S. households (D’Onfro, 2015). Given the popularity of the company’s membership programs and the overall spending of these members, the company can be said to have penetrated a considerable segment of the U.S. market. Apart from the United States, Amazon has also managed to penetrate India and is now the biggest online store in the country with over 25 million products for sale. Unfortunately, while Amazon has been successful in India, in China, the company has been struggling to become a big player as it battles declining market share since 2008. In part, this has largely been contributed to by Alibaba’s competitive advantage of being a locals’ favorite. Another competitor that has made it hard for Amazon to penetrate the market in China is Walmart. Unlike India, a considerable area of China’s population is not connected to the internet, which is making it hard for e-commerce giant retailer.

Financial Ratio Analysis

Amazon.com Inc. is well known for its ability to generate profits year after year. The net sales for the last five years have been close to 30 percent, a no mean feat, especially for a company that has experienced projection upward throughout its corporate history.

Table 1 shows gross profit margin of Amazon against its competitors from 2012 to 2016 December 31 (Stock Analysis on Net, n.d)

Amazon.com Inc., Gross Profit Margin
	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012
Selected Financial Data (USD $ in millions)
Gross profit	47,722	35,355	26,236	20,271	15,122
Net sales	135,987	107,006	88,988	74,452	61,093
Gross profit margin	35.09%	33.04%	29.48%	27.23%	24.75%
Benchmarks
Gross Profit Margin, Competitors
Costco Wholesale Corp.	11.35%	11.09%	10.66%	10.62%	10.55%
eBay Inc.	77.65%	79.39%	67.98%	68.62%	70.04%
Home Depot Inc.	34.19%	34.81%	34.75%	34.57%	34.47%
Lowe’s Cos. Inc.	34.82%	34.79%	34.59%	34.30%	34.56%
Netflix Inc.	31.72%	32.27%	31.83%	29.52%	27.25%
Target Corp.	29.53%	29.39%	29.53%	29.73%	30.10%
TJX Cos. Inc.	28.79%	28.55%	28.51%	28.43%	27.33%
Wal-Mart Stores Inc.	24.58%	24.29%	24.31%	24.38%	24.50%

Table 2 shows Amazon.com Inc. operating profit margin against its competitors.

	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012
Selected Financial Data (USD $ in millions)
Operating income	4,186	2,233	178	745	676
Net sales	135,987	107,006	88,988	74,452	61,093
Ratio
Operating profit margin	3.08%	2.09%	0.20%	1.00%	1.11%
Benchmarks
Operating Profit Margin, Competitors
Costco Wholesale Corp.	3.16%	3.19%	2.92%	2.97%	2.84%
eBay Inc.	25.89%	25.57%	19.63%	21.01%	20.52%
Home Depot Inc.	13.30%	12.59%	11.63%	10.39%	9.46%
Lowe’s Cos. Inc.	8.41%	8.52%	7.77%	7.05%	6.53%
Netflix Inc.	4.30%	4.51%	7.31%	5.22%	1.39%
Target Corp.	7.49%	6.25%	5.83%	7.46%	7.77%
TJX Cos. Inc.	11.97%	12.40%	12.22%	12.00%	10.55%
Wal-Mart Stores Inc.	5.04%	5.63%	5.68%	5.96%	5.98%
Operating Profit Margin, Sector
General Retailers	6.06%	6.14%	5.94%	6.20%	6.09%
Operating Profit Margin, Industry
Consumer Services	9.03%	9.15%	8.64%	8.65%	8.47%

Table 3 shows net margin profit of Amazon.com Inc., against its competitors

	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012
Selected Financial Data (USD $ in millions)
Net income (loss)	2,371	596	-241	274	-39
Net sales	135,987	107,006	88,988	74,452	61,093
Ratio
Net profit margin	1.74%	0.56%	-0.27%	0.37%	-0.06%
Benchmarks
Net Profit Margin, Competitors
Costco Wholesale Corp.	2.02%	2.09%	1.87%	1.98%	1.76%
eBay Inc.	80.92%	20.08%	0.26%	17.80%	18.54%
Home Depot Inc.	7.92%	7.63%	6.83%	6.07%	5.52%
Lowe’s Cos. Inc.	4.31%	4.80%	4.28%	3.88%	3.66%
Netflix Inc.	2.11%	1.81%	4.85%	2.57%	0.48%
Target Corp.	4.56%	-2.25%	2.72%	4.17%	4.28%
TJX Cos. Inc.	7.36%	7.62%	7.79%	7.37%	6.45%
Wal-Mart Stores Inc.	3.07%	3.39%	3.39%	3.65%	3.54%
Net Profit Margin, Sector
General Retailers	4.20%	3.21%	3.23%	3.80%	3.62%
Net Profit Margin, Industry
Consumer Services	5.70%	5.57%	5.00%	6.15%	4.82%

Stock Market History

For more than 20 years, Amazon.com Inc. has focused on business expansion while paying little attention to profitability. In some cases, the company made profits, while in other they incurred losses. In the stock market, the company has had some upward growth. For instance, in 1997, Amazon stock was trading at $1.73 in its market debut (Wei, 2016). In 2007, ten years, the stock closed at 63.3. For the next nine years, the price of Amazon shares at the stock market has continued to experience an upward growth, hitting $698.52 by May 19, 2016. In future, Amazon stock is projected to reach $6,000 by the end of the next ten years. Chart 1 shows stock market history from 2012 to November 2017 (Amazon.com, Inc, n.d)

Bond Ratings

On 14 August 2017, Moody’s investor’s service affirmed Amazon.com Inc Baa1 senior unsecured rating and assigned the company a Baa1 rating. Moody’s also changed the rating of Amazon to positive from stable (Global Credit Research, 2017). Virtually, the Baa1 senior unsecured rating reflected the competitive position of Amazon’s multiple online retail segments and improved performance, especially AWS. On the other hand, the positive outlook reflects the robust business model and the overall operations performance of the company. The positive outlook also reflects the expectation on the smooth progress of integration of Whole Foods and its ability to leverage opportunities at Amazon.com Inc.

Management Assessment in Annual Report

Over the past decade, computers and internet have broadly automated a lot of tasks and made it easier for businesses to reach out to a bigger client base online. Today, e-commerce saves customers a lot of money and precious time by accelerating customers’ buying trends. In light of this, and has committed to quickly solidify and extend their current position to pursue e-commerce opportunities. Amazon.com Inc. is dedicated to long-term shareholder success. The value of this is to ensure that they extend their ability and solidifies their current market leadership position. In support of their long-term commitment, the shareholders confirm the investment philosophy to continue focusing on their customers. The management also commits to continuing making long-term investment decisions to ensure long-lasting market leadership positions.

Personal Assessment

From the analysis, Amazon.com Inc. is one of the fastest growing and stable e-commerce retailer. As opposed to other investors in the industry, Amazon is committed to spending as a way of maintaining long-term corporate success. The company has shown some exceptional share price movement, backed up by robust earnings. Data also indicates that the e-commerce retail has ample room for improvement, especially with the rising number of internet users. Consequently, the U.S. online spending is projected to rise to 632 U.S. billion dollars by 2020. In light of this, from a personal point of view, I can buy stocks from the company, because the company’s stock market is projected to maintain an upward growth. 

References

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Bloomberg. (2017). Company Overview of Amazon.com Inc. Retrieved from: https://www.bloomberg.com/research/stocks/private/person.asp?personId=218119&privcapId=18749

D’Onfro. (2015). Amazon’s next big challenge: Winning India. Business Insider. Retrieved from: http://www.businessinsider.com/amazon-growth-in-india-2015-7?IR=T

Dages, J., Li., M., & Moore, C. (2016). Walmart vs. Amazon. Economist. Retrieved from: http://www.economist.com/sites/default/files/ballstate_ws.pdf

Dudovskiy, J. (2017). Amazon Organization Structure. Research Methodology. Retrieved from: https://research-methodology.net/amazon-organizational-structure-2/

Global Credit research. (2017). Moody’s assigns Baa1 senior unsecured rating to Amazon’s proposed notes offering, changes outlook to positive. Moody’s Investors Service. Retrieved from: https://www.moodys.com/research/Moodys-assigns-Baa1-senior-unsecured-rating-to-Amazons-proposed-notes–PR_371261

Morning star. (n.d). Amazon.com Inc.: income Statement. Retrieved from: http://financials.morningstar.com/income-statement/is.html?t=AMZN&region=usa&culture=en-US

Reuters. (n.d). Profile: Amazon.com Inc (AMZN.O). Retrieved from: https://www.reuters.com/finance/stocks/company-profile/AMZN.O

Reuters. (n.d). Profile: Amazon.com Inc (AMZN.O). Retrieved from: https://www.reuters.com/finance/stocks/companyProfile/AMZN.O

Statista. (n.d). Statistics and Facts about Amazon. Retrieved from: https://www.statista.com/topics/846/amazon/

Stock Analysis on Net. (n.d). Amazon.com Inc.: profitability Analysis. Retrieved from: https://www.stock-analysis-on.net/NASDAQ/Company/Amazoncom-Inc/Ratios/Profitability

The Wall Street Journal. (n.d). Amazon.com Inc.: Description. Retrieved from: http://quotes.wsj.com/AMZN/company-people

Wei. J. (2016). Is Amazon Going to Be Worth $6,000 Per Share? (AMZN). Retrieved from: https://www.investopedia.com/articles/markets/053016/amazon-going-be-worth-6000-share-amzn.asp

Yahoo Finance. (n.d). Amazon.com Inc., stock market. Retrieved from: https://finance.yahoo.com/chart/