Business_Analysis_Paper

Amazon Business Analysis University of Phoenix Online MGT/521 Management Amazon Business Analysis Amazon.com was started in 1994 by Jeff Bezos as a place to buy books. Bezos believed that only the Internet could offer customers the convenience of browsing a selection of millions of book titles in a single sitting (Amazon Overview, 2012). In 2000, Amazon.com began to offer its e-commerce platform to other retailers and individual sellers. Today, over two million small businesses increase their sales and reach new customers by leveraging the Amazon.com e-commerce platform. Amazon has continually evaluated the way it conducts business and the number and types of products it offers. However, in the world of e-commerce and technology it is treacherous ground where competition can rise over night to threaten your business. Using a SWOT analysis shows a company's strengths, weaknesses, opportunities, and threats (Nickels, McHugh, McHugh 2010). Armed with this information a mutual fund manager can decide whether or not to invest in Amazon.com. Strengths According to Research and Markets Amazon recorded revenues of $34,204 million during the financial year ended December 2010 (FY2010), an increase of 39.6% over FY2009. The operating profit of the company was $1,406 million in FY2010, an increase of 24.5% over FY2009. The net profit was $1,152 million in FY2010, an increase of 27.7% over FY2009 (Research and Markets, 2012). Some of the key points that allowed Amazon to accomplish this are global brand, diverse products, customer centric vision, and focus on research and development (Strategy Keys, 2012). Amazon has branch websites in seven other foreign countries and several other sub brands such as Zappos.com. These sub brands are part of the diverse product line that Amazon offers. The availability of so many products on one website from makes it a one stop shop for most needs. This coupled with the founding principle of making it easier on the consumer make Amazon a powerhouse in the internet market. Lastly, Amazon's focus on research and development has gone through several evolutions of tweaking the online shopping experience. First was the rating and suggestion system to find similar products. The wish lists and gift lists for customer tracking. Then came One Click purchasing and now pay phrases, all designed to make it easier on the consumer to get what they want fast and easy. However, Amazon didn't stop with software design. In 2007 they introduced the first Kindle e-reader. Going back to Amazon's roots as a book service they introduced the world's most successful e-reader and continue to improve on it. It has gone through several generations and features have been added on each version with matching upgrades to the Kindle application. This reinvestment of capitol and innovation keep Amazon at the fore front of technology and a credible investment. Weaknesses Amazon's reinvestment and expansion also has draw backs. Amazon has low profit margins for a company of its size and customer base. This is due to the low cost of products and shipping saving passed on to customers (Strategy Keys, 2012). It also has no physical presence in the form of stores like Wal-mart or Home Depot. This makes instant gratification impossible for customers who need things immediately. People have to plan ahead for shipping times and possible delays to receive items. This can drive customers to other vendors for short notice needs. Lastly, in 2004 Amazon entered the Chinese market when it acquired Joyo.com, China's largest online retailer of books and DVD's (Strategy Keys, 2012). However, the success in the country has not been forthcoming and Amazon still struggles in the Chinese market. This poor performance in one of the world’s largest customer bases may push investors away from Amazon. Opportunities The trouble in the Chinese market does not mean there are not still opportunities for Amazon at home and abroad. The opportunities that Amazon is now capitalizing on are growth in electronic media, expansion through acquisition, and social networking (Strategy Keys, 2012). The growth of electronic media such as music, movies, and books; Amazon has positioned itself with a low priced delivery system with the Kindle Fire. This product delivers electronic media easily and is priced significantly less than competitors. Amazon can also continue to branch out into other areas through more sub brands or products. One example is the Internet Movie Database (IMDb) which used to only be a movie information source but is now an interface to access Hollywood insiders, performers, or buy movie tickets. Lastly, in the electronic age Amazon is starting to move to more social networking on its sites with lists created by members and avatars for customers. Amazon could move into the next phase of customer interaction real time. An investor may want to get in now before Amazon moves even further up the Fortune 500 list. However, Amazon still faces threats to it internet shopper dreams. Threats Amazon faces several issues based on its electronic nature and independent status. First Amazon does not make most of its products and is dependent upon other vendors to provide items for shipment in a timely manner. Stockpiling a full complement of products at each distribution center is not realistic and may cause Amazon issues as it expands. The real threat however is the strong competition that it faces on the internet. Almost every business now offers internet sales and can even compliment the sale with an in store same day pick up. Additionally companies like Apple are overpowering in electronic media having almost cornered the market with the ipod/itouch/iphone/ipad. Competition is fierce in an open market like the internet where any vendor is only a click away. Marketing and price point are going to be critical as Amazon fights off competition not only locally from other retailers but internationally from Apple and many others. Amazon has a large commitment to its employees and share holders to succeed. Investors should look at Amazon's priorities and how it will satisfy all of its stakeholders. Stakeholders While Amazon does not have a physical store presence they still have over 43 thousand employees worldwide (Amazon Overview, 2012). This is just one of the internal stakeholders for Amazon; others include suppliers, distributers, and shareholders. External stakeholders also have an interest in the company such as the local community, customers, and merchant program partners. Each of these stakeholders has different needs from the company and a vested interest in how Amazon performs. Amazon must figure out the expectations of each stakeholder and how much they will influence the company's strategy. This will provide the basis of how much time and energy is used to satisfy each of their needs. The internal stakeholders are very influential to company policy decisions. Amazon must maintain a good working relationship with its suppliers and distributors. However this should require less energy since they are now long established partners who mutually benefit from growth and sales. The employees of Amazon are slightly more difficult in terms of needs with pay raises, benefits, and company morale. The shareholders are perhaps the largest issue as you try to balance employee pay and benefits that potentially cut profits from shareholders (Nickels, McHugh, McHugh, 2010). Keeping both satisfied is what will take the majority of Amazon management’s time when dealing with Internal Stakeholders. Any major moves to increase pay and benefits that cut profits from shareholders will also discourage further outside investment as well. External Stakeholders will probably influence company strategy the most as the consumer base. Customer satisfaction and repeat business drive profits for Amazon. Amazon is constantly looking to improve customer satisfaction and ease of use. This customer centric view point will take the majority of leadership time and effort over any stakeholder to ensure increased revenue. Other external stakeholders still play a role. Amazon has several environmental friendly programs such as frustration free packaging, and Kaizen Program (Amazon Innovation, 2011). Merchant partners who distribute through Amazon will also influence Amazon policy and expansion opportunities as management tries to balance growth without alienating previous partners. Overall, Amazon is doing a commendable job of satisfying all of its commitments to it’s' stakeholders so far. This should make investors more comfortable that their interests are being looked after. Financial Statement and Health The financial out look for Amazon is very promising compared to other competitors like Best Buy and Overstock.com. All three of these companies offer online sales and compete for with each other in electronics. Each company has different advantages, such as Best buy being the only brick and mortar store of the three. However Amazon continues to outshine all three by reinvesting its capitol and branching out into new markets. Amazon All numbers in thousands Period Ending Dec 31, 2011 Dec 31, 2010 Dec 31, 2009 Total Revenue 48,077,000 34,204,000 24,509,000 Cost of Revenue 37,288,000 26,561,000 18,978,000 Gross Profit 10,789,000 7,643,000 5,531,000 Yahoo! Finance (AMZN) The gross profit of Amazon has steadily increased the past three years to almost double two years ago. The increase in profit is due to the introduction of new products like the Kindle Fire which help eBook and application sales. Additionally, the internet video streaming offered by Amazon and viewable on the Kindle Fire help drive sales in multiple products. The only figure for concern is the net income. Amazon's net income applicable to common shares was only $631M in 2011 compared to $1.152B in 2010 and $902M in 2009 (Yahoo AMZN, 2012). This downtrend of net income to shareholders could be of some concern. However, the drop in profits is due to reinvestment of capitol in new media for streaming, the prime membership initiative, and branching out into international markets. Overstock.Com All numbers in thousands Period Ending Dec 31, 2011 Dec 31, 2010 Dec 31, 2009 Total Revenue 1,054,277 1,089,873 876,769 Cost of Revenue 875,189 900,233 712,017 Gross Profit 179,088 189,640 164,752 Yahoo! Finance (OSTK) When first looking at the gross profit line on the financial statement you see Overstock seeming to be holding its own. The last three years have been a little up and down for the company but as you look deeper into the finances of Overstock.com things are not going well. Their operating expenses far outweigh their profit and it is steadily getting worse. In both 2009 and 2010 the company turned net income to common shares of $7.7M and $13.8M respectively. In 2012 Overstock.com went $19.45M in the red as stocks plummeted (Yahoo OSTK, 2012). This huge downtrend in a competing online retailer shows the strength of Amazon in the market. Overstock is amid trying to right the ship. They hired a new vice president of marketing last month and are working to correct issues within the company. Best Buy All numbers in thousands Period Ending Feb 26, 2011 Feb 27, 2010 Feb 28, 2009 Total Revenue 50,272,000 49,694,000 45,015,000 Cost of Revenue 37,635,000 37,534,000 34,017,000 Gross Profit 12,637,000 12,160,000 10,998,000 Yahoo! Finance (BBY) Best Buy is the last company compared to Amazon. At first glance gross profits are increasing steadily the past three years. Again like Overstock.com the costs start to take a toll on the company. While profits were up over all so where operating costs driving net income to shareholders down $50M from last year. Amidst the announced closure of 50 Best Buy stores and the resignation of it CEO, Best Buy looks to be hitting hard times. Much of this is contributed to online sales buy Amazon who has less overhead and can undercut Best Buy. Best Buy is now considered the Amazon show floor where consumers go to test drive products only to return home and buy for less online. The closures and restructuring of Best Buy may help them stay around but expansion is not in the cards and survival seems to be the goal. Financial Summary Amazon shows great promise to be a top ten world retailer in five years. In 2011, Amazon, booked $48 billion in sales revenue, on 34 percent average annual growth between 2007 and 2011 (Best Buy Stock, 2012). Competitors online like Overstock.com are struggling to survive and traditional brick and mortar stores seem doomed to lose against the less cumbersome internet retailer. Amazon continues to expand and look into competing markets for video streaming and media downloads while producing its own hardware. Amazon is tech savvy and has the edge going into the market as not just a single product line retailer but also a mass consumer resource for most customers needs. Overstock will be hard pressed to keep current and compete, but is on the right track by remarketing itself. Best Buy may have to look for a new master plan as it continues to undercut. Whoever takes over as Best Buy's new CEO certainly has their work cut out for them. Globalization Amazon operates in six international markets worldwide apart from the United States. It is currently the largest e-commerce platform in the world, based on the number of visitors each month (Amazon Going, 2010). In bought out the Chinese company Joyo in 2004 to try to capitalize on one of the world's largest markets. Amazon as a strictly online retailer is flexible enough and structured to take over in online retail in the global economy. Amazon will have to compete with other major companies who like Amazon and the United states own their home turf. The future for Amazon does lie in expansion and they will push into different markets as they deem themselves ready. To assist in these moves Amazon recently restructured its foreign web platforms to make the more user friendly. The cultural differences are still being worked out but Amazon knows it needs international support to grow. Benchmarks Amazon has some of the best operations in the market today. Continual improvement of online capability and products for the consumer is the hallmark of Amazon. However, what has made them noticeable from the beginning as an online only retailer is the return policy. The big draw to brick and mortar stores is the instant pick up of merchandise and the ease which it can be returned if there is an issue. Since the beginning, Amazon has tried its best to make these issues a none factor. The first issue they have addressed is the instant gratification of getting what you want quickly. At first Amazon's pricing was so competitive most consumers did not mid waiting or if they paid a little but more in shipping to get a product sooner they still ended up saving over a the traditional store. Now for a low annual fee Amazon has introduced Prime membership. This annual fee service much entitles members to free two day shipping on any purchase. This is in addition to access to Amazon's growing media library of streaming media and eBook lending library. This membership much like that of warehouse stores has provided big interest. The cost to Amazon in overhead for shipping is great but the guarantee of loyal customers repeat business is hard to frown upon. Now that instant gratification is less of an issue Amazon worked on returns. Amazon knew if it was to stay afloat as an online only retailer it could not make returns intimidating or time consuming. Amazon makes it so all you have to do is print a return label and mail the item back. Never satisfied with leaving the status quo Amazon partnered with UPS stores to take packages for customers at no cost to the patron. Online service reps are available assist as well as instructional video on how to return items. All returns can be tracked and managed from your account with little trouble. You no longer need to hunt for lost receipts because Amazon already has the information and will process the item once it receives it. This makes returns as easy as shopping. This is easier than many companies that require original receipts or charge the customer the cost of return shipping. Amazon’s Adaptive Strategy At its base Amazon is built to transform to meet the needs of changes in economy and the needs of its customers. According to Johnson (2010) Amazon CEO Jeff Bezos stated that: If you want to continuously revitalize the service that you offer to your customers, you cannot stop at what you are good at. You have to ask what your customers need and want, and then, no matter how hard it is, you better get good at those things. (para. 8) On multiple occasions after the Dot com bubble burst it has expanded into different markets and new white space. Starting as a book retailer it moved to sell a wide variety of products, then web server provider, electronics manufacturer and media provider. Most recently it has opened its doors as third party retailer platform provider. Amazon now earns commission on its competitor’s sales who use them as a selling platform. The name alone of Amazon as an internet retailer has moved even its competition to join forces with the innovations of Amazon. To do this, Amazon’s leaders have become business model thinkers, that understand that both the current model of their existing business and the new models they devise are complex systems with elements that must work together to deliver real value. This innovation provided by the leaders at Amazon is what will allow the company to continue to grow into the future. Conclusion Amazon has a very positive SWOT analysis. The number of strengths and opportunities far outnumber the weaknesses and threats to Amazon. The company has proven itself as an innovator over the years in software and hardware development. The lack of physical stores has not been a deterrent for customers from using Amazon. The number of markets and products still available for expansion leave plenty of room still to grow, even in the face of stiff competition. Additionally, the financial statement analysis has shown many US competitors are struggling in the modern global economy that Amazon seems to be built for. Amazon has expanded into new markets and continues to expand its product line. It has been an innovator that has looked at new markets on a regular basis never scared to transform and leverage its human innovation. It has set the standard in online business practices and has started to push out some brick mortar stores like Best Buy. Jeff Bezos started the company out of his garage in 1994 and it is now a Fortune 500 company. It will continue to expand and increase revenue. Investors should certainly consider putting money into this creative internet company. References Amazon Going Global, 2010. Retrieved 16 April 2012 from http://thestockmarketwatch.com/stock-market-news/recent-events/amazon-going- global/2430 Amazon (AMZN) Income Statement, 2012. Retrieved 16 April 2012 from http://finance.yahoo.com/q/is's=AMZN&annual Amazon's Innovations for Our Planet, Dec 2011. Retrieved 9 April 2012 from http://www.amazon.com/b/ref=gw_m_b_corpres'ie=UTF8&node=13786321 Amazon Overview (2012) Retrieved 9 April 2012 from http://phx.corporate- ir.net/phoenix.zhtml'c=176060&p=irol-mediaKit Best Buy (BBY) Income Statement, 2012. Retrieved 16 April 2012 from http://finance.yahoo.com/q/is's=BBY+Income+Statement&annual Best Buy Stock Analysis: Sell This Dinosaur, 2012. Retrieved 16 April 2012 from http://seekingalpha.com/article/500151-best-buy-stock-analysis-sell-this- dinosaur'source=yahoo Johnson, M. W. (2010, April 12). Amazon's Smart Innovation Strategy. Bloomberg Businessweek. Retrieved from http://www.businessweek.com/innovate/content/apr2010/id20100412_520351.htm Overstock.com (OSTK) Income Statement, 2012. Retrieved 16 April 2012 from http://finance.yahoo.com/q/is's=OSTK+Income+Statement&annual Nickels, W. G., McHugh, J. M., & McHugh, S. M. (2010). Understanding business (9th ed.). New York, NY: McGraw-Hill/Irwin. Research and Markets: Amazon.Com, Inc. - Strategy and Swot Report, 29 Feb 2012. Retrieved 9 April 2012 from http://www.businesswire.com/news/home/20120229005706/en/Research-Markets- Amazon.Com---Strategy-Swot-Report Strategic planning tools - Amazon use of SWOT - TOWS, 2012 Retrieved 9 April 2012 from http://www.strategy-keys.com/Strategic-planning-tools---Amazon-use-of-SWOT--- TOWS.html