Ratio Analysis of Amazon - Research Paper Example

Amazon History of Amazon.com Amazon, a Fortune 500 company was founded by Jeff Bezos in 1994, and launched in 1995. Seattle was chosen as the best location because it had a wide range of technical talent and was strategically located close to the largest book wholesalers in Oregon. The company was first named Cadabra but was quickly dropped after people mistook it for cadaver. Amazon was picked as the suitable name because it started with letter A, an indicator of growth and was easy to spell and pronounce. It began as a book store but on realizing that the internet could expand the business by up to 2300%, it became an online bookstore before quickly diversifying into other ventures like selling VHS tapes and DVDS, video games, clothing, toys, electronics, software, and music CDs. Due to these efforts visible success, the Time Magazine, in 1999 named Bezzos as the 1999 Person of the Year. Ratio analysis The earnings per share for Amazon.com as at December 2014 were at $1.14 while the Return on Equity was at 40.2%. Since 2003, the company has had remarkable growth in sales. The total sales in 2003 were $5,743 and have grown to over $500 million in 2014, which also reflects a continuous increase in the net income. The company has a profit margin ratio of 3.2%, which is derived from dividing sales ($14,952) by net income ($487). The asset turnover ratio is at 2.3 reached at by dividing total assets by sales. Through ratio analysis, it is possible to determine whether the company is making progress or not. From the discussion, it is evident that amazon.com has seen gradual improvements in sales and net income as well as earnings per share. Amzon.com has the highest price-earnings ratio as compared to other major companies of common stock. For instance, Amazon.com has a price-earnings ratio of 58 while companies like Cocacola are at 25, Microsoft at 34, and Time Warner Inc. at 30. A comparative analysis of Amazon and eBay Amazon has established itself to be a leading e-commerce enterprise by advancing from a typical bookstore to a virtual Wal-Mart of the web. It has also introduced action services alongside the fixed-price format. Big companies like Toys ’R Us and Target outsource technological services from Amazon, Inc. there has been an impressive growth since its inception with revenues growing from $150 million in 1996 to $3.7 billion in 2000 (Laseter et. Al. p. 32). The company enjoys the economies of scale because it has effectively managed to diversify into other fields thus spreading its fixed costs across the market. The company established its brand as bookseller and through its relationship with the Wall Street; it took advantage of what optimists thought about it to diversify. Since it is always difficult to buy products directly from manufacturers like Sony, Pioneer, and Panasonic, it opts to use distributors, which gives it a competitive disadvantage in the long run. However, to be an online store giant, Amazon creatively organized information to create its own experience, something different from the traditional shopping shelves and aisles. In addition, the company pioneered most innovations in the online shopping experience thus giving it an upper hand. One-click shopping has revolutionalised the buying experience since customers have been stripped off the transactional burden. Product Review Information has played a critical role in attracting new customers since those who buy leave good remarks about them and the site. To make sure it remains ahead of its competitors, Amazon, Inc. has obtained patents for all its innovations, which limits rivals from imitating them. In addition, it has entered into partnership with several online companies like Target.com, Mervyns.com, and GiftCatalog.com among others, which has seen it improve its customer care services and order fulfillment technology. On the other hand, eBay has heard slow but steady growth because its main business is auctions. Its total revenues are at $750 million. eBay targets online auction and shopping communities, in which it uses different strategies to control them. The key segment is “Antiques & Collectibles”, motor lovers, and art lovers. eBay’s value network comprises here main groups, which are users, communication service provider and suppliers. For effectiveness, each subgroup of the mentioned three segments is termed profit sites. A market maker acts as an intermediary that offers users with a trading platform and also sets rules that control all activities. It implies that eBay, as an online auction market, values win-win reward sharing because it helps buyers and sellers get what they are looking for and develop new markets. Since it deals with auction, eBay uses brokers and agents to complete most of its transactions, get buyers and harmonize sellers depending on organizations that facilitate the auction activities for instance citigroup and Charles Schwab. To actualize the auction business, eBay created more than 24 regional trading sites all over the world. Through regional segmentation and network externality, the company is certain of endless opportunities since sellers and buyers will always come. However, a problem is evident where the regional trading sites have been made independent instead of being interconnected to the main eBay site. It makes users suspicious of fake or being conned. The site also provides effective interaction of buyers and sellers. Buyers get updated list of commodities available, get detailed information about products, and can leave feedback about what they found interesting or annoying in their experience of using the site. Sellers have unlimited access to submit as many items on the site as possible, can get very high biddings for their items, and retrieve lists of items currently selling on eBay. Industry analysis The industry in question as suggested by Hof Robert is Internet Commerce. There are lots of companies that have opted to rely on the internet in marketing, selling and buying products. It may be very challenging because not every potential supplier of consumer can access the internet at the right time. Major players in this industry include Amazon.com Inc., Autobytel Inc., Petmed Express, Groupon Inc., Alibaba Group, Evine Live Inc., eBay Inc. Cnova NV, and Cur Media Inc. to be assured of success in the competitive industry, Amazon.com Inc. effectively manages four main areas; cost leadership, strategic acquisitions, efficient distribution and logistics, and economies of scale. Through cost leadership, the company has managed to acquire some upcoming companies in this industry thus strengthening it. For instance, Amazon.com Inc., acquired Kiva at the cost of 1.3 billion. Kiva specializes in robot manufacture while Amazon uses them in handling most of the store and warehouse operations thus saving on time and improving efficiency. Having realized that all the major players in this industry are concerned with improving the shopping experience, Amazon.com took the lead by improving on its infrastructure, diversifying its products, partnering with other online retail companies, not necessarily in this industry, and reducing on commodity prices. To counter competition, the company has a nice opportunity, in which it is establishing a wholesale and market under a subsidiary website www.amazonsupply.com. Conclusion Amazon.com was developed from a simple idea. It has grown into one of the largest retail companies in the whole world. Through strategic moves, the company has handled competition in a unique manner. New and strong competitors however remain to be a threat. Google services, Apple, and Alibaba Group are the major rivals because they have personalized operations. Google for instance offers the world with free access to a variety of books thus eliminating the need for buying a hard copy. Alibaba has owned and controlled the largest population in the world; China and has completely blocked competitors from entering the market. Such competitor strategies against amaxon.com have seen it make huge losses of up to 3 billion in a single year. Work cited Hof, Robert. Amazon.com: The Wild World of Web Commerce. Businessweek.com. 2014. Web. Laseter, Tomothy M., Patrick W. Houston, Joshua L. Wright, and Juliana Y. Park. “Amazon Your Industry: Extracting Value from the Value Chain”, First Quarter, 2000. Web. Read More