Amazon.com, Inc.- Financial and Strategic Analysis Review

Transcription

1 Amazon.com, Inc. - Financial and Strategic Analysis Review Publication Date: Sep-2015 Company Snapshot Key Information Amazon.com, Inc., Key Information Web Address Financial year-end December Number of Employees 154,100 SD AMZN Key Ratios Amazon.com, Inc., Key Ratios P/E Company Overview Amazon.com, Inc. (Amazon.com) is a global online retailers and web service providers. The company provides an extensive range of products that includes apparels, auto and industrial items, beauty and health products, electronics, grocery, books, games, jewelry, kids and baby products, movies, music, sports goods, toys, tools and others. It also provides services such as home delivery and shipping, website hosting and other web related services. It offers its merchandise through company-owned retail websites. It also manufactures and commercializes Kindle devices. SWOT Analysis EV/EBITDA Return on Equity (%) Amazon.com, Inc., SWOT Analysis Strengths Weaknesses Debt/Equity 1.16 Operating profit margin (%) 0.20 Dividend Yield Note: Above ratios are based on share price as of 14-Oct-2015 Operational Network Customer-Centric Business Strong Business Model Opportunities Declined Financial Performance Operational Issues Threats Share Data Amazon.com, Inc., Share Data Price (USD) as on 14-Oct EPS (USD) Book value per share (USD) Shares Outstanding (in million) 462 Expansion Initiatives Growth Prospects: E-Commerce Strategic Acquisitions Foreign Exchange Risk Market Competition Stringent Government Regulations Performance Chart Amazon.com, Inc., Performance Chart ( ) Financial Performance The company reported revenues of (US Dollars) US$88,988 million for the fiscal year ended December 2014 (FY2014), an increase of 19.5% over FY2013. In FY2014, the company s operating margin was 0.2%, compared to an operating margin of 1% in FY2013. The net loss of the company was US$241 million in FY2014, compared to a net profit of US$274 million in FY2013. The company reported revenues of US$23,185.0 million for the second quarter ended June 2015, an increase of 2.1% over the previous quarter. Page 1

2 Key Information Amazon.com, Inc., Key Information Corporate Address 410 Terry Avenue North, Seattle, WA, , United States Ticker Symbol, Stock Exchange AMZN [SDAQ] Telephone No. of Employees 154,100 Fax Fiscal Year End December URL Revenue (in USD Million) 88,988.0 Industry Locations Consumer Markets, Consumer Packaged Goods, Retailing Canada, China, Costa Rica, Denmark, France, Germany, India, Ireland, Italy, Japan, Luxembourg, Spain, United Kingdom, United States Company Overview Amazon.com, Inc. (Amazon.com) is a global online retailers and web service providers. The company provides an extensive range of products that includes apparels, auto and industrial items, beauty and health products, electronics, grocery, books, games, jewelry, kids and baby products, movies, music, sports goods, toys, tools and others. It also provides services such as home delivery and shipping, website hosting and other web related services. It offers its merchandise through company-owned retail websites. It also manufactures and commercializes Kindle devices. Amazon offer programs that allow authors, app developers, musicians, filmmakers, and others to publish and sell content. Geographically, the company operates in North America and other international locations through its subsidiaries. Amazon.com is headquartered in Seattle, the US. Page 2

3 Amazon.com, Inc. - SWOT Analysis SWOT Analysis - Overview Amazon.com, Inc. (Amazon) is an online retailer and web service provider. The company provides an extensive range of products including apparels, auto and industrial items, beauty and health products, electronics, grocery, books, games. Strong business model and customer-centric business are its major strengths. Though the company has risks associated with competition and exchange rates, its expansion plans, acquisition and positive outlook for e-retailing would contribute to its growth prospects. Amazon.com, Inc. - Strengths Strength - Operational Network The company's strong operational network helps it in catering to large customer base efficiently. Amazon offers its customers a one-stop shopping environment ranging from apparels to electronics to grocery. Along with a wide choice of merchandise and efficient customer service, it emphasizes on selection, price and distribution. The company supplies products to end customers through an extensive network of facilities managing fulfillment, segregation, delivery, warehouse operations, data center, customer service, and other services across North America, Europe, and Asia. As of December 2014, the company s facilities covered an area of million square feet. Through its large fulfillment centers, the company stores, manages and distributes diverse goods such as apparels, auto and industrial items, beauty and health products, books, computers, digital downloads, electronics, grocery, games, home items, jewelry, kids and baby products, movies, music, sports goods, toys, tools and others. Strength - Customer-Centric Business Amazon has adopted a number of technologies to make its websites customer friendly. Some of the key features of the websites include editorial and customer reviews, manufacturer product information, gift guides, web pages customized to individual preferences such as recommendations and notifications, 1-Click technology, secure payment systems, digital content and 'Search Inside the Book' feature. Customers can track their orders online through Your Account website features. With customer service centers globally, the company can easily cater to the customers needs. In addition, it offers free shipping options worldwide. Apart from third party products, the company also offers its customers a range of in-house manufactured electronic devices, including Fire tablets, Fire TVs, Echo, Fire phones and Kindle e-readers. All these features enhance the online shopping experience of its customers, resulting in high customer loyalty. The company is also expanding its customer reach, which provides a wide scope to serve large number of customer across the world. Strength - Strong Business Model The company has strategically enhanced its business operations through expanding its business areas to different products. The company diversified its operations from online bookstore to wide variety of online merchandising. Its direct-to-consumer online model helps in increasing its inventory turnover and better returns. The company under its business models operates small lean warehouses in multiple geographies. The direct to consumer business model help the company to manage its capital investments for warehouses and inventory risks. It also helps it to increase its sales volume. It offers online retailing of products based on everyday low pricing model. The company extended its presence in different countries through offering country specific websites and fulfillment networks. Amazon tested its all new features in the US markets than replicating the most successful ventures in international markets. Its product offerings are expanding through agreement with third-party sellers across the world. In addition, the company markets e-commerce platforms to other retailers for using technology. The company under its business model also offers bundle services to customers to bring greater efficiency and lower prices to the market. The bundled services further diversified its presence in e-commerce markets to other platform services within the cloud computing industry. Amazon.com, Inc. - Weaknesses Weakness - Declined Financial Performance Decline in financial performance could have a negative effect on the company's growth and expansion plans. In FY2014, Amazon recorded decline in its financial performance. Though, the company's total revenue increased to US$88,988 million in FY2014, an increase of 19.52% over 2013 (US$74,452 million), its bottom line declined. Amazon s revenues increased largely due to significant growth in electronics and other general merchandise. The operating profit of the company was US$178 million during the FY2014, compared to US$745 million, a decrease of 76% over that in Its operating costs as percentage of sales increased from 98.99% in 2013 to 99.80% in This was mainly due to increase in fulfillment costs, marketing costs and other expenses. Further, it reported net loss of US$241 million in 2014, as compared to net profit of US$274 million in Such results were due to increase in interest expenses and decrease in other income. Weakness - Operational Issues Amazon is subject to lawsuits and claims, actual and potential. Currently, the company is involved in defending several of Page 3

4 its cases. Legal proceeding, regardless of the outcome, could drain the financial resources and divert the time and effort of any management. Most of these are related to patent, employee relations, contract, product liability, environmental, antitrust and others. In December 2014, Smartflash LLC and Smartflash Technologies Limited filed a lawsuit against Amazon.com, Inc., Amazon.com, LLC, AMZN Mobile, LLC, Amazon Web Services, Inc. and Audible, Inc alleging infringement of its patents related to data storage and access systems. In June 2014, SimpleAir, Inc. filed a complaint against Amazon alleging infringement of its patents related to system and method for transmission of data. In April 2014, Spansion LLC also filed lawsuits alleging infringement of its patent related to system for erasing a memory cell. The company is strongly defending its position in all the cases. Amazon.com, Inc. - Opportunities Opportunity - Expansion Initiatives The company's strategic initiatives to widen its presence and strengthen its assortment of products drive growth opportunities. In September 2015, the company announced its plans to expand its Kindle Scout, a reader-powered publishing platform, to more authors and readers across the world. The company plans to partner with authors in Europe, Canada, Australia, New Zealand, South Africa, Mexico, Brazil, Japan and India to publish their works under its digital publishing banner, Kindle Press. In August 2015, the company also announced its plans to open a fulfillment center in Joliet, Illinois and San Marcos, Texas. In June 2015, the company expanded its operations into Mexico by launching a Spanish-language website that offers a wide selection of products at low prices. Opportunity - Growth Prospects: E-Commerce With the increasing trend of e-commerce business, there is huge potential for the company to increase its sales and customer base. A large number of customers prefer to shop online and place their orders through credit cards, thereby avoiding the time consuming journey and billing queues. According to industry estimates, the online sales in the US are expected to reach approximately US$280 billion in The US had approximately 300 million internet users in 2014, an increase of 7% over previous years. The use of smart phones, tablets and other internet enabled devices contributed to growing E-commerce market. As one of top players in e-commerce market, the company could capitalize on this scenario. Opportunity - Strategic Acquisitions Amazom continues to view acquisitions as a key part of its growth strategy. These acquisitions are intended to supplement the company s core growth and assure ongoing expansion of its business, including new technologies, additional products, and geographic reach. Inorganic growth strategy adopted by the company may significantly increase its market share. In September 2015, the company signed an agreement for the acquisition of Elemental Technologies, Inc. (Elemental), a provider of software-defined video solutions for multiscreen content delivery. Elemental has over 700 media franchise customers and serves some of the world s most popular over-the-top TV (OTT) applications, including CNNGo, ESPN ScoreCenter, BBC s iplayer, HBO GO, MSNBC Shift, and Sky Go and Sky Now. The company also acquired Twitch Interactive, Inc (Twitch), a provider of game video management and streaming platform. Through this acquisition, the company intends to integrate the user community and technologies of Twitch into its operations. Further, it acquired comixology, which revolutionized the digital comics reading experience with their immersive Guided View technology. Amazon.com, Inc. - Threats Threat - Foreign Exchange Risk Amazon has significant operational presence in major markets across the world, which increases its exposure to foreign currency fluctuations. The company has operations in Asia, Europe and North America. It holds assets, liabilities and revenues in different currencies. Amazon carries out transactions in Euro, British Pounds, Japanese Yen, and Chinese Yuan and others. However, the functional currency of the company is the United States Dollar (USD). The company has potential threats for reduction in its overall revenue due to weak exchange rates for the US$ against all major currencies. In 2014, International segment accounted for 38% of the company s total revenue. As a result of fluctuations in foreign exchange rates, International segment decreased US$580 million in comparison with the prior year. Such fluctuations in exchange rate could impact its revenue and increase its exposure to various long term liabilities. Threat - Market Competition The company operates in a highly competitive online retailing market. It competes with other online e-commerce and mobile e-commerce sites, publishers, media companies and other companies designing, manufacturing, marketing its digital media devices. The company competes on the basis of price, selection, convenience, quality, speed, and reliability of its services and tools. Some of its major competitors include ebay Inc., Yahoo Inc., Books-A-Million, Inc., Barnes & Noble, Inc., ValueVision Media, Inc., Walmart, Macy s, and Netflix, Inc. Some of the company's current and potential competitors may have access to greater resources, wider customer base and greater brand recognition. With the increasing competition, the company has to maintain higher stocks and adapt to changing business needs. Page 4

5 Threat - Stringent Government Regulations The company is subject to various regulations governing the internet, e-commerce and electronic devices in addition to general business regulations and laws. These include regulations are related to taxation, privacy, data protection, pricing, content, copyrights, electronic device certification, electronic waste, consumer protection, the provision of online payment services, the design and operation of websites, and the characteristics and quality of products and services. Currently, the US Supreme Court decisions restrict the collection of state and local taxes for Internet sales. But, a number of states and the US Congress have been considering initiatives, which may limit the Supreme Court s position regarding sales and use taxes related to Internet sales. If these initiatives are successful, the company may be required to collect sales and use taxes in additional states or change its business practices. The imposition of taxes by state and local governments may create administrative burden on the company. Such existing and future regulations may reduce the demand for the company s products and services and increase its operating costs. NOTE: The above strategic analysis is based on in-house research and reflects the publishers opinion only Page 5