Amazon cloud the latest move from internet giant
Since its inception in 1996, Amazon (AMZN) has become the number one e-commerce site for all things from books to jewellery. Founder Jeff Bezos has built a company with over 150,000 employees doing over $88 billion in revenue each year. Purchasing companies such as Goodreads, Zappos, and Audible.com have allowed the company to continue to grow and provide new services each year. However, as the company continues to grow, it still has not produced a year of profitable business, which worries many investors. Additionally, Amazon has made themselves the largest target for all other e-commerce businesses, looking to take away market share at any opportunity. Will Amazon continue to grow, and will this growth eventually lead to the profitability needed to keep investors happy?
Amazon Web Services blowing away the field
Last year for the first time Amazon finally released earnings information as they pertained to Amazon Web Services (AWS), the company’s cloud computing service. In its latest earnings report, AWS reported generating $1.57 billion in revenue, with an expected revenue figure of $6 billion for the year. This makes AWS the biggest cloud infrastructure service, beating out Microsoft, IBM, and Google by a wide margin. Amazon cloud could be the biggest single factor in the success, or otherwise, of Amazon. But what are the other influences of the fortunes of the stock price?
Continuing growth ideas
With a market capitalisation of almost $200 billion, Amazon has to innovate and develop new markets if it wants to continue to grow and expand. For this reason, the company has just invested $2 billion in the Indian e-commerce market. This is a big deal considering that the company has not registered any profits from its international business for last year. The reason for the investment lies in India having the second largest population in the world, which according to Morgan Stanley, makes it possibly the fastest-growing e-commerce market in the world. The biggest corporations in the Indian e-commerce market are relatively minor players – Flipkart and Snapdeal – with eBay working its way in to the fold as well. This makes the opportunity for revenue growth in the Indian market a very big deal.
Another big announcement that just hit the newswire has Amazon pitting themselves against Etsy, with their own marketplace for artisan goods, which they are calling “Handmade”. The company is only in the beginning stages of Handmade, sending out private invitations and surveys to hand-picked artisan sellers in an attempt to mould a better understanding of how to build its marketplace. Etsy has over 20 million active buyers and its sellers have already expressed interest in selling on Amazon’s new marketplace, citing huge traffic numbers that make it pretty appealing.
Competitors are all around
Since Amazon’s business is laid out in a multitude of industries, from music and books to cloud computing, they have competitors all over the place that are looking to take them down. Other retailers such as Best Buy, Walmart, and Sears are obvious competitors on the retail front, while Microsoft, Salesforce, and Oracle attempt to compete in the cloud computing space. However, there is one company that is looking to out-do Amazon in every way possible, and that’s Google.
Google has been a company that sees itself in direct competition with Amazon, with its top executive stating that, “really our biggest search competitor is Amazon.” Instead of allowing Amazon to infringe on their turf, Google is fighting back by entering in to the e-commerce space itself, recently announcing a plan to launch buy buttons on its search-result pages in coming weeks. This will put Google square in the face of Amazon’s e-commerce retail business, and with the power of the largest search engine on the planet behind them, Google has the ability to do some real damage. What it boils down to in the end is that both Amazon and Google want to be the top online destination for people searching for items to buy, and it will be an intense battle for both to keep market share moving forward.
Will lack of profit catch up to Amazon?
With all of the great innovations and growth seen by the company, Amazon still has yet to turn an annual profit. Historically this would have been seen as a huge deficiency of any publicly traded company, but in a new era where growth has surpassed profit in terms of importance, it is hard to tell how operating at a continued loss will affect the company moving forward.
Will consumers find better prices?
Amazon has built their business based on the idea that they provide the cheapest prices for e-commerce shoppers. However, while the site has the highest amount of traffic and possibly the most positive consumer sentiment, their pricing isn’t necessarily the best in the marketplace, something that may catch up with the company in the future. A recent example was highlighted on online shopping forums, showing a running shoe from New Balance that was priced more than 25% cheaper on another site than it was on Amazon. An academic study actually showed that Amazon has the public perception of providing the cheapest prices by discounting their most popular products, while actually charging more for products that aren’t as popular. If consumers ever figure out that they are paying more for products on Amazon it could spell trouble for their retail business.
Bottom line
Amazon is the biggest e-commerce company on the planet and therefore won’t be going away anytime soon. Amazon Web Services (Amazon cloud) continues to dominate the market in an ever-growing industry, and new innovative ideas like Handmade aimed at taking down competitors will push the company forward. However, that doesn’t mean that Amazon is on course for smooth sailing. If all of their great ideas and future inventions (drone delivery anyone?) don’t lead to turning a profit, investors will eventually give up, and the story of Amazon the e-commerce giant will end poorly.
Trade Amazon today at 24Option.
Further Reading;
Sell in May, Go Away – Truth in the old adage about seasonality?