Discuss abou the Business Valuation Report Amazon.
Based in Seattle, Washington, United States of America, Amazon is a leading online retailer. Found in 1995, the company has expanded to different parts of the world such as the Asia Pacific, North America and Western Europe. The Company can be divided into three domains namely International, North America, and Amazon Web Services (AWS). As far as the North America segment goes, the focus is on boosting the retail sales of consumer products from sellers as well as subscribers. it can be achieved through the official websites of different countries such as www.amazon.com.mx, www.amazon.com, and www.amazon.ca. Additionally, its North America segment deals in export sales too through these websites. Talking about the International segment, revenue comes from the sale of consumer products, majorly through the sellers and subscriptions via official websites. Just like the other domain, even here sales would be generated through export sales from its official websites referring to different countries including the United States, Mexico and Canada. Furthermore, the AWS segment generates revenue through the sales of database, computer storage, and many other AWS service offerings to government agencies, new businesses and academic institutions. Though the company started with selling books online, over a passage of time, they have managed to diversify to different product segments including apparel, electronic and home improvement products.
Even though the e-commerce industry has had a rough time in between but Amazon managed to sustain the pressure. Amazon gained its first annual profit in 2003, and since then, it has performed consistently well each year. The company competes with other market players including Barnes and Nobles, and Ebay.com (Ebay). With the current market capitalisation amounting to 726.73USD, the company has been forging ahead to make an exceptional mark in the industry.
Profitability
The company’s profitability has improved by 0.16% for a full calendar year touching the mark of $1.2 billion (Owens, 2016). It was during the same quarter last year that the company suffered from a loss of $57 million. Thus the recent statistics only show the growth company has made in the past year. The most prominent change witnessed in the last one calendar year is the emergence of Amazon Web Services as a strategic asset.
Of all, it’s the cloud-computing arm of Amazon which witnessed a high growth rate and a positive margin as compared to other domains. In the first quarter, AWS generated revenue of $2.57 billion, a 64% growth during the same quarter a year ago, and Amazon’s e-commerce business enjoyed a stupendous 25.6% year-over-year growth. While Amazon’s e-commerce business reported an operating margin of less than 2% in the quarter, AWS reported an operating margin of 23.5%, thereby significantly contributing to the percentage of revenue (Owens, 2016).
The company posted its fourth straight profit through a 28% sales increase (Pramuk, 2016). Given the stifling market competition, Amazon Web Services managed to report a sales increase of 64%to $2.57 billion from the mark of $1.57 billion in the prior-year period (Pramuk, 2016). Alongside, the sales figures matched the forecasts in both its North America and international units. While the North America reported sales at $16.99 billion, a 27% increase from $13.41 billion in the previous year, the International revenue increased by 24% to $9.57 billion from $7.75 billion, thereby surpassing the popular estimates. It’s expected that for the second quarter, Amazon will achieve the net sales in between $28 billion to $30.5 billion, which marks 21 to 32%growth from the previous year.
Amazon.com Inc’s annualized Return on Equity (ROE) for the quarter that ended in Mar. 2016 was14.58% (gurufocus.com, 2016). This goes on to prove that the company has managed to make the best out of the investment to drive it towards growth and success. Also, it enhances the market value of the company as investors decide to put their bet on the profitable companies in the market. The annual Return on Assets (ROA) for the quarter that ended in Mar. 2016 was found to be 3.24% (gurufocus.com, 2016). Though the company suffered from the ROA from the year 2013 to 2014, the value managed to improve from 2014 to 2015, thereby surpassing the level seen during the year 2013.
As far as working capital is concerned, the company has managed to maintain a positive cash flow with the maximum amount $1,450 in 2007. As of the first quarter of 2016, the value of working capital stands at $4.84 billion from $5.58 billion in fourth quarter 2015 (wikiinvest.com, June 6, 2016). It only goes on to show the capacity of the company to pay off its short-term liabilities and operating expenses. It is calculated as the difference between current assets and liabilities.
Working capital indicates the capacity of the company’s operation strength. If to analyse in the context of efficiency, Amazon has managed to effectively utilize its assets in generating sales as compared to the other market players. This validates Amazon’s effective inventory and asset management as well supported under the influence of low profit margin and low pricing strategy.
Asset Turnover ratio indicates how efficiently a company converts its asset through sales from different products. The revenue for the company for the three months ended in Mar. 2016 touched the mark of $29,128 million. The average value of the total assets of the company in the quarter that ended in Mar. 2016 was $63,286 million. Henceforth, Amazon.com Inc’s asset turnover for the quarter that ended in Mar. 2016 was 0.46. Based on the industry standard, Amazon is surpassing the market standards.
As for the assets turnover ratio, the company managed to achieve the value of 1.91 in the first quarter of 2016 despite the increase in the revenue (csimarket.com, 2016). The value stands at 1.98 in the Q4 of 2015. Within retail sector, the company had earned the top spot in asset turnover ratio. Till now, the company had attained the highest asset turnover ratio of 9.92 as on Sep 30, 2005 (csimarket.com, 2016).
Conclusion
Based on Amazon’s current performance and the way it has managed to surpass the market estimates, there is fair chance that the company will have a strong growth trajectory as backed by the low pricing strategy coupled and the famous free shipping model. Amazon has been making strategic moves in order to fit into the stifling market competition in different markets. Amazon has pushed its market share in the e-commerce segment in the US from 22% last year to 26% this year, as per Macquarie Research (Wahid, 2016). If Macquarie Research analysts are to be believed, then the company has managed to gain 51 cents from every additional $1 spent on online retail items in the US. As there seems no closure to the shopping trend, the company will continue to ride high on its e-commerce model in the times to come. As per some market analysts, nearly half of the households in the US would become Prime members by 2020, an increase of 25% from the existing value (Wahid, 2016).
The company has been making many strategic moves in order to develop its strength. For instance, the e-commerce giant Amazon has been eyeing the huge Indian market to increase its influence outside the U.S. It would not just be making capital investment but would be planning to acquire some starups to consolidate its presence in the region. It has recently acquired Indian payments company Emvantage Payments Pvt. Ltd, though the amount hasn’t been disclosed yet (Rao, 2016). Just like PayPal, Emvantage would make it easier for online merchants to accept credit and debit cards. Given its long term strategic vision, the company aims to develop and strengthen payment service system for e-commerce in India. In the same vein, the company had acquired Zappos.com and enhanced version of Kindle to boost the sales for the company and hence the profitability. These strategic steps reflect the approach of the company and its confidence in gaining an edge over other competing firms in different product segments around the world.
As the company has shown encouraging financials, the annual profit is expected to increase in the years to come. Given its strong financial results amid the tough economic situation, it has boosted the confidence of the customers on the company. As it enjoys the status of a market leader in online retail, its sales are going to increase in the near future. Given the projected global online sales of $2.05 trillion in 2016, there is sufficient scope for other industry players to give tough competition to Amazon.
With strong prospects for growth, shares of the company has increased 277% over the past five years, thereby expanding the market capitalization to $323 billion, surpassing Walmart’s $197.5 billion. As per the Wall Street analysts, the 12-month target price for the share of the company is $746.60, thereby reflecting a return potential of 8.3% (Wahid, 2016).
References
Csimarket.com. (2016). Amazon Com Inc Asset Turnover Ratio (AMZN), from first quarter 2016 to first quarter 2015 current and historic results, rankings and more – CSIMarket. [online] Available at: https://csimarket.com/stocks/singleEfficiencyat.php?code=AMZN
Gurufocus.com. (2016). Amazon.com Inc (AMZN) Asset Turnover. [online] Available at: https://www.gurufocus.com/term/turnover/AMZN/Asset%252BTurnover/Amazon.com%2BInc
Owens, J. (2016). Amazon’s best new feature: Profitability. MarketWatch. Retrieved from https://www.marketwatch.com/story/a-new-day-for-amazon-2016-04-28
Pramuk, J. (2016). Amazon blows past earnings estimates, shares pop 12%. CNBC. Retrieved from https://www.cnbc.com/2016/04/28/amazoncom-reports-q1-earnings-results.html
Rao, L. (2016). Amazon Just Acquired This Payments Company. [online] Fortune. Available at: https://fortune.com/2016/02/16/amazon-acquisition-india/
Wahid, N. (2016). Can Amazon.com, Inc (AMZN) Stock Sustain the Upward Rally Going into 2016?. [online] Businessfinancenews.com. Available at: https://www.businessfinancenews.com/27121-can-amazon-amzn-stock-sustain-the-upward-rally-going-into-2016/
Wikinvest.com. (2016). Change In Working Capital for Amazon.com (AMZN) – Wikinvest. [online] Available at: https://www.wikinvest.com/stock/Amazon.com_(AMZN)/Data/Change_In_Working_Capital
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