Amazon.com, Inc. (NASDAQ:AMZN) rules the online retail segment. It has diversified product line and sells a little of everything. The company acts as a big virtual mall owner. Any retailer who wants the virtual space can get from Amazon on rent. Amazon even after adding all these outside vendors dominates the online retailing with its wonderful basket of products. This helps it to claim the number one position among online stores.
Amazon has been criticized for selling too many products, but this could be seen as a strength. Amazon reportedly brought its music service which was seen as a challenger to Apple Inc. (NASDAQ:AAPL) iTunes service. The Kindle Fire from Amazon stood almost parallel to Google Inc (NASDAQ:GOOG) and is a potential competitor to Netflix’s Streaming services. However, it remains to be seen if it can successfully use its muscle to carve out big profitable niches in each area it tries. One thing is clear. Amazon will experience a lot of competition in many areas, and it will be a miracle if it can be successful long term in all of them.
Financials- Growing Revenues But Bleeding bottom Line
Amazon.com, Inc. (NASDAQ:AMZN) despite posting a loss in the recent quarter continues to be a stock worth adding to the portfolio. The web service major holds the impressive market share of 34%, up from 29% in 2011 and 24% in 2010.
Amazon.com, Inc. (NASDAQ:AMZN) reported $13.18 billion revenue (a growth of 27 percent) and an operating loss of $28 million, for the latest quarter. The net income of the company stood at a loss and was recorded $274 million. Amazon has $5.25 billion in cash ($11.41 per share) and $2.6 billion in the long term liabilities.
The company’s North America segment reported the net revenue of $7.8 billion in the third quarter. International segment of the company reported revenue of $5.9 billion, with 19.8% year over year growth and segment operating loss of $59 million.
Incredible Shipping and Distribution Network
Amazon along with selling through its website, ships at little or no cost. The products ordered by the customers reach within a day or two, and Amazon is working to deliver the product on the same day of order. There is no other company in competition that can match the Amazon shipping standards. Amazon’s rigorous expansion in their distribution through massive investment in warehouses, robots that automate the actual shipping, distribution centers close to big centers like Ney York, can prove to be the nightmare for other companies into this business. In the latest development, Staples Inc the largest U.S. office supply retailer and has agreed to install Amazon Lockers in its U.S. stores. This will help online shoppers to get their orders in the office supply chain store.
Physical Book orders
Amazon started to sell physical books on its websites and strained the big book stores resulting in their close. The company will take two initiatives further to gain a strong foothold in the book business. Along with selling physical books Amazon.com, Inc. (NASDAQ:AMZN) will also enter book publishing, and seeks to overtake the book publishing business. There are strong possibilities that Amazon can dominate the market here, as well.
Market Share over Margins
Amazon, in some of its ventures, has decided to give away with margins. The cloud computing price of Amazon’s AWS is so competitive that it has already discomforted competitors like Netflix, Inc. (NASDAQ:NFLX). In the Tablet market, Amazon is not aiming to make a profit by selling the devices instead its target is to make money when consumers use it. The idea is simply that they want to earn the margin when customer starts using the content.
Ahead Of Competitors
As an online retailer, Amazon is ahead of it competitors. The company managed to sell more products at significantly lower prices than other online retailers. The company has used ‘public cloud’ technology to carve out a different place for itself in the discount retail market. The point where Amazon differentiates itself from others is that it has made rigorous efforts to develop and to be recognized as the most customer-centric company. The online retailer from where shoppers can buy almost anything they want at the lowest possible prices.
The discount retailers such as Wal-Mart Stores, Inc. (NYSE:WMT), Sears Holdings Corporation (NASDAQ:SHLD), and Target Corporation (NYSE:TGT) are losing market share because of the extensive expansion plan of Amazon. In a recent survey, it was revealed that about 50% of Wal-Mart customers have also shopped from Amazon. This is a massive increase compared to previous years. Some large retailers are trying to follow the Amazon’s business model, but the company has the first mover advantage and enjoys the confidence of customers.
Amazon.com, Inc. (NASDAQ:AMZN)’s review system and One-click ordering will make Google suffer in terms of shopping, and revenue and it could be a big setback for the web giant. The commercial searches on Google make up about 20% of total Google searches. Lately, the customers have developed the trend to skip Google Inc (NASDAQ:GOOG) and directly search for the product on Amazon.com or on Amazon applications in Mobile phones.
Launching the competition to Amazon, Google announced that it would enhance its process and aim at delivering the products same day. The search giant has already begun the trial for a delivery service launched in partnership with retailers (including national chains) in San Francisco. eBay Inc (NASDAQ:EBAY) is another online retailer which will enter into the arena of same day product delivery. Amazon, however, says that, at this point of time, it may not be feasible for the company to do same-day delivery on the wide scale, but it is spending aggressively to bring down delivery times.
Kindle-A Good Move
Amazon invited a lot of criticism when it offered its own tablet, the Kindle – that too at an unbelievable low price. But a nearly no-profit Kindle actually generates revenue from the service to which the customer subscribes. Another benefit of a low-priced Kindle is that it created competition in the tablet market and forced other tablet makers to bring down their prices, which has led to greater demand for tablets. And for Amazon the more tablets, the more customers visit the Internet. Amazon has gained a substantial market share by providing Kindle devices and Kindle applications in Android and Apple devices. To progress further, Amazon signed expensive content deal with Epix which will be strategic in improving its streaming content and raising demands for its new Kindle launched in September. Recently Amazon launched its Kindle store in China and this could pave the way for Kindle devices in China, as well.
Although it is always risky to invest in stock which does not provides exponential earning growth, it remains vital to examine as to why the growth remains passive. If the past trend is examined then it is noticed that the company, which keeps earning ahead of its own customer base, is destined to fail no matter the short term benefits. Earnings, after all, can often wait unlike the customers that are sure to demand immediate top tier service. The important update, which the earning provides about the financial health of the company, cannot be argued; still the time and effort a company dedicates to its customer base will bear much importance. The risks are definitely brewing for Amazon.com, Inc. (NASDAQ:AMZN). These include cut-throat competition in the tablet market and a higher-than-expected increase in operating expenses. Before an investor puts money into Amazon, they must ask themselves, what is most important: rapid revenue growth or profitability?
Despite the debate over revenue vs. profitability, the company is seeking further retail expansion in United States. Amazon with annual revenue of $63 billion is still only 12% to 13% of Wal-Mart’s annual sales of $500 billion. Wallmart roughly constitutes 10% of the total sales in U.S. the figures indicate that Amazon has huge potential of growth in the market with advantages such as competitive prices.