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Amazon competitive advantage strategy
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Financial Analysis of Amazon.com
Q1 - 9. Brief Description of the Company:
Founder and CEO Jeff Bezos opened the virtual doors of Amazon.com's online store in July 1995. The company was incorporated in 1994 in the state of Washington and reincorporated in 1996 in Delaware. The Company's principal corporate offices are located in Seattle, Washington. Amazon.com completed its initial public offering in May 1997, and its common stock is listed on the NASDAQ National Market under the ticker symbol AMZN. Amazon.com's fiscal year is based on the calendar year, and the last day of the fiscal year is December 31. The closing stock selling price for February 1, 2006 was $43.98. Amazon has never declared or paid cash dividends on its common stock.
Amazon.com Inc. operates web sites that sell various products and services, which primarily include apparel, shoes, and accessories; health and personal care; baby care products; books; camera and photography; and consumer electronics. The company and other sellers also offer various new, refurbished, and used items in categories, such as health and personal care, jewelry and watches, gourmet food, sports and outdoors, apparel and accessories, books, music, digital versatile discs, electronics and office, toys and baby, and home and garden. These products are purchased from distributors, publishers, and manufacturers. The company and its affiliates operate seven retail Web sites: www.amazon.com, www.amazon.co.uk, www.amazon.de, www.amazon.co.jp, www.amazon.fr, www.amazon.ca, and www.joyo.com. It also operates www.a9.com and www.alexa.com that enable search and navigation, and www.imdb.com, a movie database Web site.
As mentioned before, Jeffery P. Bezons is the President and Chief Exe...
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...g losses for several years and has not paid any dividends to its stockholders to this date. Moreover, the stock price data for the first quarter of 2006 shows that Amazon lost more than $10 in its stock price (net blow to stock holders receiving no dividends) during the quarter.(See the chart below). Further, the gloomy picture of net cash flows into the company almost put it on the verge of bankruptcy.
The inter-company industry data also discourages investors from putting their money into Amazon.com. The company ranks 15th (out of 119 industry total) in terms of Price to Equity Ratio, 29th in terms of EPS Growth and Long term (5yr) Growth Rate, and 39th in terms of Revenue Growth. (Source: www.finance.yahoo.com). The industry ranking for Amazon.com drives potential investors to other fruitful companies within the same industry.
Figure 1: Trend in stock price
History”, n.d.). But the unbelievable pace at which Amazon added new products and new customers proved to be a formidable barrier for any competitors. Within the first 10 years Amazon accomplished an unbelievable feat; it had 49 million customers and 6.9 billion dollars in revenue, and it had done so by selling some products at a loss to build market share (Rivlin, 2005). At times it was difficult leveraging so much capital to grow market share, but Jeff Bezos’ focus on the customer and long term growth of the company proved to be the real reason Amazon didn’t fall prey to the .com bust like so many other internet
Since 1996, when Amazon.com was incorporated it has never offered dividends to its shareholders (Nasdaq, 2015). The company’s dividend policy is not to pay dividends so that it is reinvested by seeking out opportunities and developing new products (Reeves, 2012, p. 17). In addition, the company’s net income has been fluctuating since 2004. According to Market watch (2015), the company’s net income in 2010 was US$1.15 billion, it reduced to US$ 631 million in 2011, it reduced further to US$ 39 million in 2012 before increasing to US$ 274 million in 2013. In 2014 the company’s net income reduced to US$ 241 million. The fluctuations in net income arise from strategic investments that have long-term returns. Stewart, (2014), notes that the high prices of Amazon.com’s shares are due to investors’ positive outlook about the company’s profitability in future. In this regard, the long-term bets have paid off the company resulting to investor confidence. Amazon 's net income for the three months ending in June 2015 was $92 Mil. Its net income for the trailing twelve months (TTM) ending in June 2015 was $-188 Mil (Bezos, 2015). In comparison to three of its top competitors, Amazon has the lowest net income.
It is divided into several independent organizations like Amazon Europe, Amazon US and Amazon Japan.
Treanor, T.. (2010). Amazon: Love Them? Hate Them? Let's Follow the Money. Publishing Research Quarterly, 26(2), 119-128. Retrieved February 24, 2012, from ABI/INFORM Trade & Industry. (Document ID: 2377177581).
Although Amazon has been active trying to find the perfect strategy to make profits, the numbers in its financial statements had not shown the most optimal results. We have discuss that even though its strategies have been right according to supply chain and logistics methodologies and theory, something had been missing to represent this successful strategies into financial results. It is seen that Amazon had spent too long time finding the right strategy which the last might be the one because in the financial statements profits started to come up. Amazon still have a long way to go to mature its strategy and represents it into profits for its shareholders.
Another part of Amazon’s retail strategy is to serve as the channel for other retailers to sell their products and take a percentage of cut of every purchase. Amazon does not have to maintain inventory on slower-selling products. This strategy has made Amazon a ‘long tail’ leading retailer, expanding its available selection without a corresponding increase in overhead costs.
Launched by Jeff Bezos, the Amazon.com website started in 1995 and is today considered as one of the most prominent retail website on the internet with a record turnover of US$ 14.87 billion in 2007. Jeff Bezos’s intention was to create an internet based company with the most dedicated product portfolio on the internet where customers could find anything they might want. Amazon’s success is based on technology, services and products (Jens et al., 2003).
When Amazon.com first began in 1995, as strictly a book retailer, Bezos knew he had discovered an excellent company. After all, a physical bookstore cannot stock anywhere close to the number of books Amazon can offer online. Within a year, the company had a customer base of approximately 340,000 consumers and daily site visits were huge as well. But Bezos wanted to expand the company to offer music and DVDs, because he realized there was little or no barrier of entry. In the next years Amazon would emerge as a marketplace, expanding the company globally offering products from toys to kitchenware. Because of the relatively cheap prices Amazon was offering and also the growing number of online shoppers, the company was doing tremendous amounts of sales and creating profits.
Amazon.com creates value for its customers by offering customers broad array of products to select from through their website and ensuring timely delivery of products to exhibit high level of commitment towards their business and customers
In 2002 Annual Report, Amazon has made numerous attempts so that they will remain ahead among its competitors in the industry. Among those efforts includes store personalization that cater for each customer, show customer reviews on its offering products and wide selection to the customer by placing used products next to the new products.
Amazon is best known for their kindle, fast shipping, and selling various products (Smith). With Amazon being such a large corporation, professionalism, academics, character, and engagement are crucial parts of the success of the company. Professionalism: Amazon has grown to become the largest internet-based retailer in the world by total sales. It began as primarily an online bookstore and soon began to sell more and more electronics and then over time began to sell pretty much anything. In 1998, Amazon earned about $0.6 billion, which held steady growth from 1998-2006 (“Amazon.com”).
In conclusion, Amazon has embraced innovation. The company has not had worries with the use of innovation. They use innovations as measurements and end up with flourishing business ideas. They experiment, learn through outcomes and try new ways of doing things. They have put the customer as their first priority. Everything that the company does gears towards attracting customers through quality of services, availability of products, assurance of delivery and addressing customer feedbacks. These factors have helped the company become a multinational and a multimillion company where customers flock everyday.
Technological factors. This is very important factor for Amazon therefore the success of the business depends on that. Amazon has to face a lot of technological challenges and to find a way to be ahead of the competitors.
Jeffrey Bezos, the founder and current CEO of Amazon.com, initially started the company as an online bookstore in 1994. Within several months, Amazon spread its operation to all 50 states and abroad. Presently, customers from over 45 countries buy at Amazon. Over a short period of time, the company expanded sales to electronics, video games, software, CDs, DVDs, MP3 downloads, food, furniture, apparel, jewelry, and toys. Today, the company even produces its own products such as the Kindle series. Also, Amazon.com is one of the major providers of cloud computing services. Currently, the company is the largest global online retailer responsible for 20% of online retail market share.
This statement is still driving Amazon to provide the best for their customers. It is impressive when a business is able to fulfill their original mission statement, while being an E-business that is demanded to provide and keep up with the most current wants and desires of the consumer, especially as Amazon began and still is highly driven from popular department of electronic related products. Amazon began by selling their first book, progressing to 1-Click Shopping experience, then to creating their symbol “AMZN” on the NASDAQ, while launching the Music Store, Advantage Program, and opening numerous Fulfillment and Customer Service Center within and outside of the United States (History of Innovation). Next, let’s look at how Amazon uses all these characteristics to be a financially