Amazon: Profits or Revenues?
Jacob is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Amazon.com (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 access to AMZN’s virtual space can rent it. Amazon, even after adding all these outside vendors, dominates the online retailing with its wonderful assortment of products. This allows 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 that was seen as a challenger to Apple’s iTunes service. The Kindle Fire from Amazon stood almost parallel to Google 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 ventures into.
Financials- Growing Revenues But Bleeding bottom Line
The web service giant holds the impressive market share of 34%, up from 29% in 2011 and 24% in 2010.
Amazon reported $13.18 billion revenue (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.
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. In the latest development, Staples, 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 demise. The company will take two initiatives to further gain a foothold in the book business. Along with selling physical books Amazon 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 its margins. The cloud computing price of Amazon’s AWS is so competitive that it has already discomforted competitors like Netflix (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 its 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.
Amazon’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 and directly search for the product on Amazon.com.
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 (NASDAQ: EBAY) is entering same day shipping. 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.
The risks are definitely brewing for Amazon. 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?
Amazon with annual revenue of $63 billion is still only at 12% to 13% of Wal-Mart’s annual sales of $500 billion. Wal-Mart 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.
valuewalk has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, Google, and Netflix. Motley Fool newsletter services recommend Apple, Amazon.com, eBay, Google, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!