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 began as Earth's biggest bookstore, but has become Earth's biggest everything store. Its website still offers millions of books, as well as other media, home furnishings, clothing, pet supplies, office products, and hundreds of other product categories (with items often ordered and delivered the same day). The company is also 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 ownership of natural foods chain 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 30%), and Amazon Web Services (AWS, about 10%).

Its North America segment includes retail sales and subscriptions sold via North American-focused websites, as well as through Whole Foods grocery stores, while the International segment includes the operations of internationally-focused websites such as Amazon sites serving the UK, Brazil, Japan, and other countries. AWS includes global revenue from its cloud, storage, database, and other services.

Stepping back from the geographic reporting, online sales, including products sold on behalf of third-parties, account for about 80% of Amazon's total revenue. The company's retail subscription services contributes about 5% of revenue and consists 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; Whole Foods physical stores account for just under 5% of sales.

Geographic Reach

The US is by far Amazon.com's largest market by sales, with Germany, the UK, and Japan the top three international markets.

Based in Seattle, the company has a host of fulfillment, delivery, data, and other facilities in North America, Europe, and Asia.

Sales and Marketing

Amazon.com serves consumers through its online and physical stores. Its AWS segment targets businesses of all sizes, government agencies, schools, and other entities; customers include UC Berkeley, Kellogg's, Comcast, Hulu, the Centers for Disease Control, and Hess.

Financial Performance

It is a bit of an understatement to call Amazon.com's recent revenue growth strong. Amid a boon in online shopping, the company's sales have rocketed nearly 140% since 2013. Net income has been slightly move volatile, however, as Amazon has been investing in its fulfillment operations, digital content, technology infrastructure, and other initiatives.

After a 27% jump in revenue in 2016, the company reported a 31% increase in 2017 to about $178 billion. All three segments grew that year, with North America adding about $25 billion in new revenue from increased unit sales and the acquisition of Whole Foods. AWS continues to be the fastest-growing segment with a growth rate of 43% (although that's down from 55% and 70% in 2016 and 2015, respectively).

Amazon posted record net income for the second consecutive year with profit of $3 billion, up from $2.3 billion the prior year. The strong performance is powered by the high margins of AWS, which had operating income of $4.3 billion in 2017, about $1.5 billion higher than profit from the North America segment and more than enough to offset a $3 billion loss from the International segment, where Amazon is investing in its fulfillment network and technology.

Cash at the end of 2017 was about $20.5 billion, an increase of $1.2 billion from the prior year. Cash from operations contributed $18.4 billion to the coffers, while investing activities used nearly $28 billion, mainly for property and equipment, including internal-use software and website development, and acquisitions. Financing activities added about $10 billion as Amazon recognized proceeds from long-term debt of more than $16 billion.

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.

Lastly, the company is making moves into the health care industry. In 2018 it announced plans for a health care alliance (details are sparse) with Berkshire Hathaway and JPMorgan Chase. Amazon is also bulking up its medical supplies inventory as it looks to better serve hospitals and other medical facilities through its business-to-business offering.

Mergers and Acquisitions

One of the ways Amazon has achieved unprecedented growth and moved into new areas is through acquisitions.

In 2018 agreed to buy PillPack, an online pharmacy, for a reported $1 billion. PillPack ships medications in pre-sorted dose packaging, coordinates refills and renewals, and ensures timely shipments.  The company has pharmacy licenses throughout the US and is authorized to deliver in 49 states and is an in-network pharmacy for major Medicare Part D plans.The purchase would add a valuable consumer category to Amazon's warehouse of goods and increases its presence in health care. The deal was expected to close in the second half of 2018.

Amazon broke into the grocery business by buying 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.

Smaller purchases in 2017 include Souq.com, the largest e-commerce seller of goods in the Middle East, for about $580 million; California-based Graphiq, which provides search technology Amazon hopes to use to improve digital assistant Alexa; and Massachusetts-based security camera/video doorbell producer Blink Home, which will enhance Amazon's in-home delivery service (Amazon Key).

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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
  • 2017 Employees: 566,000

Major Office Locations

  • Seattle, WA

Other Locations

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