AmazonFive-Year Performance Analysis
AmazonFive-Year Performance Analysis
Amazonis the largest online retailer in the world. The company started itsonline activities in July 1995 and has risen to be the largestweb-based retailer in the world. Traditionally, Amazon was associatedwith books, but the company has transformed its operations to includenon-media gods, drills and business services. The transformation hasbeen coupled by instability in its stocks, and irregular profits overthe last couple of years (Thompson, 2014). The following case studyexamines Amazon’s performance over the last five years in order tomake credible predictions to its future performance.
Since2009, the company has experienced significant drops in its returns oninvestment. The last five years have been financially challenging forAmazon due to drops in its profits and drops in its market stockprice. In 2009, the company recorded 13.99% ROI, followed by 13.67%in 2010. Return on investment margin dropped further to 6.8% in 2011,before falling to 0% in 2012 (see figure 1). 2012 was one of theworst years for the company, but it gained some momentum in 2013 torecord a growth of 1.59% in ROI.
Figure1: Amazon ROI from 2009
Oneof the significant turning points in 2012 after registering 0% returnon investment was the CEO’s decision to transform the traditionalculture of Amazon as a book retailer to an all-inclusive onlineretailer. The CEO introduced other non-media goods to expand itstarget customers, leading to a gradual increase in its ROI. Theexpansion of its products and diversification of its products in 2012led to significant net income growth and positioned Amazon among thebest online retailers in the world.
In2014, Amazon started positing positive results due to diversifiedproducts and development of customer-oriented web services thattarget different customers with different consumer needs anddifferent expectations. In addition, Amazon has been registeringsurprising growth in stocks from 2009, despite its dropping returnson investment. The company’s overall change from 2009 is at298.67% having registered less than 100 million stock volumes in2009, to more than 350 million in 2014 (Carnevale, 2013).
Thesignificant growth of Amazon over the last five years despiteregistering drops in profits has been motivated by diversifiedinvestments and reliable management style of the company’s CEO.Amazon has posted growth in stocks over the last couple of years dueto expansion of its investments across the world. Investors have beenassured of positive future performances due to past investments innew businesses that generate future cash flows. The company hasinvested in warehouses to stabilize its shipping operations ratherthan hire external investors (Kotha & Basu, 2011). The warehousesserve as expandable future assets that can be used to generate futurecash flows. In addition, the company has also been expanding kindledevices and services. This has generated competiveness and increasedits share capital by expanding its target customers. In addition,Amazon has been investing in cloud computing and video streaming inorder to generate returns by expanding its target customers.
Overthe last five years, the drop in Amazon’s profits has not affectedits customers due to positive predictions (Carnevale, 2013). Thegrowth in stocks and share capital demonstrates the strength ofAmazon in investing in new ventures and diversifying its products.Amazon has been the leading company in cost leadership. In addition,the company has emerged as one of the leading investors in newtechnology, infrastructure and business initiatives. The company’sspending is ranked among the highest in terms of expandingoperations. However, most of the investments are aimed at improvingthe company’s service delivery, enhancing communication platformswith customers and establishing advanced platforms and products tomeet individual customers’ wants.
Thesignificant growth in profits over the last quarter was predicted togenerate stability in Amazon’s stocks. However, the company fellshort of its expectations by 10%. According to Wilhelm (2014) of TechCrunch Apps, Amazon fell short of its highest and lowest expectationsin terms of earnings per share and revenue. Contrary to the expectedrevenue of over 26 billion, Amazon managed to post revenue of 25.59billion. In addition, this year generated strong indications forAmazon’s growth compared to the previous years when the companyregistered losses and zero-rated ROI due to excessive investments andacquisitions to expand services, products and exploit the availableonline infrastructure.
Oneof Amazon’s strengths is the CEO, Jeff Bezos. After the death ofSteve Jobs, the former Apple CEO, Bezos is one of the best managersin the world. One of the main objectives with Bezos is to enhancecustomer service and increase customer satisfaction. According toAnders (2012), Amazon tracks its performance against 500 measurablegoals. Out of these 500 goals, 80% relate to customer expectations,needs and wants (Mudambi & Schuff, 2010). In addition, thecompany has had numerous investments in its service delivery andchange of its product lines in order to increase customersatisfaction and to generate appropriate products for its globalcustomers.
Anders(2012) also claims that over the last couple of years, Amazonremained among the best companies in terms of customer satisfactionbased on the University of Michigan customer-satisfaction indexreleased each year. The performance of Amazon demonstrates thecommitment by the CEO and its top management to invest incustomer-oriented products, irrespective of profit margins andcompetitiveness (Rigby, 2011). The management has been stable,innovative and customer-oriented. In addition, data driven customershave paved way for numerous innovations and risk-taking initiativesthat have resulted with increased customers in the world.
Amazon’scorporate governance is dedicated towards enhancing shareholder valuecreated over the long-term (Amazon, 2014). The company has beenmaking different decisions from other companies in order to establishsustainable long-term returns. Although the company insists on theimportance of customer satisfaction and increasing share value, themain corporate objective is to develop long-term shareholder value.This involves making innovative and creative decisions that targetlong-term leadership gains as opposed to short-term profitabilityconsiderations. This approach has been affecting shareholding valuedue to reduced profits and decreasing revenues. Corporate governancealso insists on prioritizing cash flows to maximize for long-termgains. In a letter to the shareholders on the future and vision ofcorporate governance, the company insisted on prioritizing long-termcustomer benefits through innovation, diversification and expansionof infrastructure. Over the last five years, Amazon has expanded itswarehouses, revolutionized cloud computing, diversified its productsto non-media goods and enhanced its websites to accommodate differentconsumer needs. Therefore, the company has fulfilled its promiseswhile ensuring shareholders get the best as demonstrated by theincrease in share price from 2012 to the beginning of 2014.
Figure2: Amazon five-year Stock Prices. Retrieved fromhttp://finance.yahoo.com/q/bc?s=AMZN&t=5y&l=on&z=l&q=l&c=
Figure2 demonstrates the company’s significant increase in share pricefrom 2009 to 2014. The graph indicates positive increase in pricesirrespective of the drops in profits. The graph demonstrates thelevel of trust among Amazon investors and the demand for thecompany’s shares in the world. Share price is one of the mosteffective ways of predicting companies’ growth patterns (Anders,2012). Based on Amazon’s share price analysis, Amazon is one of thebest companies to invest in. the company has demonstrated ability toremain competitive in its share price despite registering slow growthin its profits. In addition, Amazon has emerged as one of the largestonline retailers after diversifying its products and acquiringpermanent assets, for example, warehouses.
Thecompany has also emerged as a cost leader in the e-commerce industry.Its prices has increased the number of customers and generatedpositive rankings in the customer-satisfaction index. Similarly,Amazon has numerous investment opportunities due to the cloudcomputing service space. Over the last couple of years, the companyhas concentrated on expanding its online interactions and services byintroducing back-end computing capabilities at reasonable prices(Malaga, 2012). These services have enhanced sustainability throughenhanced engagement and interactions with customers. It has also madeAmazon a leader in web-based retail services.
Thecompany has numerous opportunities to expand due to its marketcommand that could extend its revenues by introducing its own brands.For example, the introduction of Kindle served as a huge success forthe company. With the current investors’ support and approval,Amazon can diversify its operations and increase returns oninvestment. In addition, its expanding retail products and servicesas well as flexible shipping hours have enhanced the company’sability to remain competitive in stock market (Friesner, 2014). Overthe last couple of years, Amazon’s operations have not beenaffected by poor returns. Instead, the company has gained trust fromits investors and has managed to regain its market command throughincrease share prices, increased revenues and enhanced physicalpresence.
Thecompany’s strategic acquisitions establish predictable profits dueto increased share capital and enhanced operations platform. Amazonhas managed to stabilize its online operations through enhancedinformation management systems and customer relationship management(CRM) skills (Klaus, 2013). The skills are aimed at enhancingcustomers’ needs and adjusting the company’s priorities to servecustomers. The numerous investments made by Amazon to improvecustomers’ experiences demonstrate the company’s commitment toserve customers. Amazon has positive attributes that enhance itsposition as the leading online retailer in the world. The company isexpected to post higher profits in future and is therefore one of thebest companies to invest in. The financial situation at Amazon isstable and deemed to make higher returns on investment.
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