Amazon.com, Inc. is an online retailer that offers a wide range of products. The Company’s products include books, music, videotapes, computers, electronics, home and garden, and numerous other products. Amazon offers personalized shopping services, Web-based credit card payment, and direct shipping to customers.
Amazon.com opened up its operations as an online retailer of Books in the year 1995. Amazon.com has expanded into a number of other product categories, including: apparel, shoes and jewellery; electronics and computers; movies, music and games; toys, kids and baby; sports and outdoors; home and garden; tools, auto and industrial; grocery; health and beauty; and digital downloads.
The company operates the following retail Web sites: www.amazon.com (U.S.), www.amazon.co.uk (U.K.), www.amazon.de (Germany), www.amazon.fr (France), www.amazon.co.jp (Japan), www.amazon.ca (Canada), www.amazon.cn (China), www.amazon.it (Italy), www.amazon.es (Spain), www.amazon.br (Brazil), www.amazon.in (India), www.shopbop.com, www.endless.com, and www.zappos.com. Amazon also designs, manufactures and sells a wireless e-reading device, the Amazon Kindle. It focuses first and foremost on the customer experience by offering a wide selection of merchandise, low prices and convenience.
In 2006, Amazon Web Services (AWS) began offering IT infrastructure services to businesses in the form of web services — now commonly known as cloud computing. One of the key benefits of cloud computing is the opportunity to replace up-front capital infrastructure expenses with low variable costs that scale up business. With the Cloud, businesses no longer need to plan for and procure servers and other IT infrastructure weeks or months in advance. Amazon is the market leader in offering cloud computing services to businesses across 190 countries in the World with data center locations in the U.S., Europe, Brazil, Singapore, Japan, and Australia.
The global cloud computing market is expected to grow at a 30% CAGR from 2015 to reach USD 270 billion in the year 2020. AWS has a strong foundation to garner a chunk of revenues in the cloud computing segment of the industry.
Industry Trend and Information
The company faces stiff competition from players in the same business like Priceline Group, Overstock.com, Netflix, Expedia, Blue Nile and 1-800-FLOWERS.com but remains the market leader in the e-commerce industry.
US e-commerce sales are expected to grow at a CAGR of 9% from a projected USD 262 bn in 2013 to USD 370 bn in 2017.
In 2012, only about 8% of total U.S. retail sales were estimated to be e-commerce transactions, totalling USD 231 billion. It is anticipated that the figure will rise to 10% by 2017, to USD 370 billion. Another opportunity is the growing use of the Internet internationally, with penetration rates at 33% at the end of 2011 (latest available), according to Internet World Stats. This compares to 78% penetration in the U.S. and demonstrates strong potential for increased Internet usage and e-commerce sales all over the World. Amazon has 23% market share for online retail sales (2nd quarter for 2014), according to estimates.
A gain in the market share of the ecommerce industry is expected to drive the growth in revenues and profitability for the industry players and amazon being the market leader is expected to consolidate its position in the long term.
The Company reported Sales of USD 74 billion in 2013. From 2010 to 2013, Amazon.com generated a three-year compound annual growth rate (CAGR) in sales of 32%. The growth is largely due to global expansion and product category growth. Amazon’s return on invested capital (ROIC) has fluctuated dramatically over the years, but decreased modestly to 2.9% in 2013 (versus 3.7% in 2012 and 6.2% in 2011). Amazon’s business is highly capital-intensive in terms of spending on technology and content, as the company spent USD 3.4 billion in capital expenditure for the year 2013.
The company reported revenues of USD 20.57 bn with a loss in the operating and net profit for the 3rd quarter of 2014. Around USD 16.02 billion stemmed from Amazon selling products itself to consumers, and remaining USD 4.56 billion, came from commissions from outside merchants that sell on Amazon marketplaces, the Amazon Web Services cloud computing service and other smaller revenue sources. Net Service sales rose 38.8% compared to last year.
International net sales totalled USD 7.71 billion, up 13.4% from USD 6.80 billion in 2013. International accounted for about 37.5% of sales in the third quarter, compared with 39.8% in 2013.
Spending on marketing increased 43.1% to about USD 993 million from USD 694 million in the third quarter of 2013. Spending on technology and content increased 39.9% to USD 2.42 billion from USD 1.73 billion. Spending on fulfilment increased 30.0% to USD 2.64 billion from USD 2.03 billion in 2013. General and administrative spending increased 46.0% year over year to USD 406 million from USD 278 million.
Revenues are expected to grow 20% in the year 2014 in comparison to 2013 that had a growth of 22%. After reporting positive earnings per share of USD 0.59 per share in the year 2013 the company has reported negative earnings in 2nd and 3rd quarter of 2014. Estimated earnings per share in the year 2014 is USD -0.54 per share.
The company has a long term debt of USD 3.19 bn at the end of third quarter of 2014 and has a current market capitalization of USD 177 billion with a price of USD 380 per share. The Price to Book Value is 16 and the Market Capitalization to Sales ratio is 1.8 (FY15 Est.). The company has not declared any dividend.
The closest competitor of Amazon.com is Alibaba.com with a market capitalization of USD 213 billion with a price of USD 97 per share. Alibaba group is followed by Liberty Interactive Corporation with a market capitalization of USD 12 billion with a price of USD 28 per share.
Walmart stores also competes with Amazon.com and has operations in the retail category with stores as well as online sales. Walmart has a market capitalization of USD 279 billion with a price of USD 87 per share. It is however not a market leader in online retail sales but a leader in the retail stores category.