While comparing Amazon as it stands today with what it was in 2001 (with reference to the Amazon case study), I was amazed at the growth of Amazon in these 11 years. Amazon’s revenue at the end of 2012 was $62B, 20 times the amount in 2001. However, what struck me was the net income, which hovered around zilch.
I didn’t have to dig deep before I found CEO Jeff Bezos’s reasoning on the situation I was worried about. The CEO prefers to put every penny back into market expansion for Amazon. Bezos has iterated umpteen times that he is focused on the customer and not short-term profitability or Wall St. estimates. Experts have predicted that Amazon will be the 9th largest retailer in the world by 2018, without even having a single physical store. Probably this is where Bezos’s Amazon is headed!
The above chart displays revenue segments that Amazon reports. Analyst Ben Evens explains, “These are in different industries, at different stages of development, and in different markets. It seems pretty likely that their underlying economics are different too.” Further Amazon is operating the same product lines in multiple regions or countries. They keep investing back for growth as lines of revenues have been increasing. If you look closely, Amazon seems like a bunch of start-ups.
As with any company, some products work out and some don’t. This brings me to the latest developments at Amazon which might turn out to be a great source of revenue for Amazon –
1. Investing in mobile advertisements to market its products – As online shopping on mobile devices increase, Amazon is luring app owners by offering 6% commission if a user buys Amazon product through their app.
2. AutoRip – If you ever bought a CD or Vinyl from Amazon after 1998, you get to digitize your music without paying a penny. This is a good marketing ploy to cross-sell its other service – pay a small fee to get an eBook for the physical book you have already bought at Amazon. They hope to move every customer from physical book to eBooks.
3. Selling Fine Art online – Yes, you read it right. If you happen to have $4.5M, you can buy Norman Rockwell’s “Willie Gillis: Package from Home” right away. Online art sales are supposed to grow by 2.5 times to $2.1B by 2017. This is yet insignificant compared to the $56B art market.
The company has been growing by leaps and bounds, but it would be interesting to see when will it decide to throw a switch and make a profit. Do the shareholders care? Probably not. Amazon shares have risen 5 fold in the last 5 years!
References –
http://ben-evans.com/benedictevans/2013/8/8/amazons-profits
http://www.nasdaq.com/symbol/amzn/interactive-chart
http://www.theverge.com/2013/4/12/4217794/jeff-bezos-letter-amazon-investors-2012
http://www.sec.gov/Archives/edgar/data/1018724/000119312513151836/d511111dex991.htm