Amazon.com, Inc. at a Glance

Uppers

  • Leading internet retail company with over 137 million active customer accounts
  • Reputation for low prices and reliability

Downers

  • Lack of charitable corporate giving in past years
  • Employees often work long days and overtime hours, especially during the holidays

The Bottom Line

  • A well-respected company that is an industry leader in new products and technology.

About Amazon.com, Inc.

Amazon.com doesn’t hit on all cylinders (remember that phone?), but it hits on enough to make it one of the world’s most effective companies. What began as Earth's biggest bookstore has become Earth's biggest everything store. While the website still offers millions of books, movies, games, and music, and of other items (sometimes ordered and delivered the same day), the company has become much more. It is the dominant cloud services provider, an influential entertainment company through its video operations (it produced 2017 Oscar-nominated Manchester-by-the-Sea), a force to be reckoned with in grocery with its acquisition of Whole Foods, and a leader in digital personal assistant devices with Alexa and its Echo product line.

Operations

Amazon.com organizes reporting of its operations into three segments: North America, about 60% of revenue, International, about a third of revenue, and Amazon Web Services (AWS), about 10%.

The company also tracks operations by grouping them into similar categories. Through that lens Amazon’s retail operations, its own and on behalf of third-party sellers, generates about 85% of its revenue. Its own retail sales, about two-thirds of revenue, include product sales and digital media content. Third-party services, about 20% of revenue, include commissions, related fulfillment and shipping fees, and other services.

Amazon Web Services, about 10% of revenue, includes computer, storage, database, and other service offerings for a range of customers from start-ups to big companies to government agencies. Clients include Netflix, airbnb, and Pinterest.

The company’s retail subscription services, about 5% of revenue, consist of the annual and monthly fees associated with Amazon Prime membership, as well as audiobook, e-book, digital video, digital music, and other subscription services.

Geographic Reach

While most of Amazon.com’s sales from the US and North America, a significant portion is generated overseas. The biggest country markets are Germany, about 10% of revenue, Japan and the UK, between 5% and 10% each, and the rest of the world, 8%. Amazon also does business in Brazil, China, France, Italy, Australia, Mexico, the Netherlands and Spain. The company's Appstore serves customers in some 200 countries.

Sales and Marketing

Amazon advertises its wares through online marketing channels including sponsored searches, portal advertising, direct sales, and email campaigns. The company spends about $45 billion a year on advertising.

Financial Performance

During the past several years, the online giant's sales have grown dramatically. In 2016 it followed two straight years of 20% revenue grown with a leap of 27% to $136 billion. Sales in all segments rose, led by a 55% rise in AWS which was spurred by more customers. In the North America and International segments higher unit sales were boosted by Amazon’s focus on keeping prices low, including from shipping offers, sales in faster growing categories such as electronics and other general merchandise, increases in-stock inventory availability, and increased selection of product offerings.

Amazon posted its highest profit of $2.3 billion in 2016, boosted by the high margins of AWS. The cloud-services unit had operating income of $3.1 billion while the overall operating income was $4.2 billion.

Cash flow from operations rose to about $16 billion in 2016 from $11.9 billion in 2015 on the increase in net income.

Strategy

Amazon.com’s strategy seems simply to be more. More industries, more products, more services, more (and faster) delivery options that lead to more customers, more revenue, and more profit.

Perhaps most important is more information. Amazon uses artificial intelligence throughout of its systems to collect data on how the systems are used and how they can be improved. The information is also used to improve the customer experience. Machine learning drives the company’s algorithms for demand forecasting, product search ranking, product and deals recommendations, merchandising placements, fraud detection, translations, and more. Visible applications are autonomous drone delivery, the Alexa digital assistant, and AWS.

Amazon also wants to make it easier to consumers to buy products from it. Its $99-a-year Prime service provides free two-day delivery as well as next day delivery when products are stocked in a nearby fulfillment center. Owners of the Echo products can order products through Alexa. To get shipment to customers faster, Amazon has been on a fulfillment center building binge. In its 2017 fiscal year, the company added 26 warehouses. The company also offers same-day delivery for some products in some cities for a price.

Besides the line of Echo devices, Amazon offers other consumer products such as its Fire TV devices, Kindle e-book readers, Audible audiobooks, and more that tie closely into its ecosystem. They provide services to consumers as well as data for Amazon that it uses to change and improve its products and come up with new ones.

Amazon has ventured into brick-and-mortar locations with three bookstores and its AmazonFresh store in its hometown of Seattle. The twist with AmazonFresh is that customers don’t have to go through a checkout line. Barcodes are read as they head out of the store and their Amazon accounts are billed. The deeper move into physical stores came with the purchase of Whole Foods. Prices for many items are Whole Foods stores fell on the day Amazon’s ownership was finalized. Operating some 460 grocery stores should provide Amazon with insights to compete with other grocery chains and Amazon’s operational know-how should help Whole Foods run more efficiently.

AWS has been Amazon’s turbocharged growth engine, attracting customers that range from startups that need minimal amounts of computing power to companies like Netflix that stream millions of hours of video a day around the world from AWS servers. Following the Amazon philosophy, AWS continues to add functionality and reduce prices to attract more users and figure out how to run more efficiently to make it work financially.

Mergers and Acquisitions

One of the ways Amazon has achieved unprecedented growth over the years is through the use of acquisitions.

Amazon decided the way to break into the grocery business was to buy Whole Foods Market for $13.7 billion. Amazon's hand was apparent when the deal closed in August 2017: Whole Foods stores greeted shoppers with lower prices for a number of items and displays for Echo devices. The deal gives Amazon immediate entry into a business that it had been inching into with a small store in Seattle that features cashless payment and the AmazonFresh delivery service. But Whole Foods, which has some 460 stores, is a long-term bet by Amazon on a brick-and-mortar business. While the grocery business is a big part of the US economy, it remains a small percentage of online sales. Whole Foods, which pioneered the natural foods supermarket sector, might get a chance to pioneer another new grocery business model, this time in partnership with Amazon. Whole Foods management is to remain and it will keep its headquarters in Austin, Texas.

In early 2017, Amazon purchased Souq.com, the largest e-commerce seller of goods in the Middle East. Souq.com's 75,000 merchants sell two million products across 30 categories to neighboring Middle Eastern countries including Bahrain, Oman, Kuwait, and Egypt. The deal will significantly bolster Amazon's presence in the Middle East.

In 2015 AWS acquired Elemental Technologies, pioneers in software-defined video solutions for multiscreen content delivery. The acquisition brought together Elemental's leading video solutions with the AWS Cloud platform to provide media and entertainment companies with a range of integrated solutions to efficiently and economically scale video infrastructures as the media industry increasingly moves to internet based delivery.

To expand its menu of media and entertainment content, Amazon in October 2014 acquired Rooftop Media, an online comedy service. The purchase of Rooftop, which produces audio and video programming, furthers Amazon's foray into the digital content market where it seeks to compete with Netflix and other online digital media services. Also that year the acquisitive company purchased comiXology, a digital comic book platform; and Twitch Interactive, a live video platform for gamers.

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Amazon.com, Inc.

410 Terry Ave N
Seattle, WA 98109-5210
Phone: 1 (206) 266-1000
Fax: 1 (206) 266-4952

Stats

  • Employer Type: Public
  • Stock Symbol: AMZN
  • Stock Exchange: NASDAQ
  • CEO, Worldwide Consumer Business: Jeffrey A. Wilke
  • SVP and CFO: Brian T. Olsavsky
  • CEO, Worldwide Consumer Business: Jeffrey A. Wilke
  • 2016 Employees: 341,400

Major Office Locations

  • Seattle, WA

Other Locations

  • Mobile, AL
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  • Little Rock, AR
  • Chandler, AZ
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