The Financial Analysis of Amazon

Identification of Strengths and Weaknesses 

Strengths	Weaknesses
Brand valuation	Tax avoidance issues
Cost leadership	Imitable business model
Increased acquisitions	Losing profit margins in some regions

Strengths 

Brand valuation 

Amazon has realized a significant rise in brand value in 2020. According to a report published by Kantar, Amazon has a brand value of $415.9 billion, making it the leading company in the world (Handley, 2020). The spread of coronavirus has contributed to the increased need for online purchases. Since Amazon has strategically placed itself in the online market, it will continue to gain reputation among users in different parts of the world. 

Cost Leadership 

One of Amazon’s significant strengths is its ability to operate without physical stores. The company relies on economies of scale that reduce the operational costs and lowers its inventory replenishment. Besides, Amazon has teamed up with companies such as Evi Technologies and Thalmic Labs to enhance its value chain system. 

Increased Acquisitions 

Amazon continues to dominate the tech, food, retail, movie, and automobile industries through acquiring the rising and established firms. For example, it has acquired Whole Foods, Zappos, IMDB, and Junglee as a means to expand its operations, revenues, and profits. Recently, Amazon officials stated that they plan to venture into the automobile industry by promising to acquire Zoox, a self-driving car company (Palmer & Levy, 2020). This move will likely pose a challenge to car companies such as Tesla. 

Weaknesses 

Tax Avoidance Issues 

Over the last two years, Amazon has been accused of failing to pay federal taxes despite generating significant revenues over the same period. This issue resulted in public outrage and criticism against the company (Isidore, 2019). Critics accuse Amazon of breaking the US tax code laws; this problem propagates negative publicity for Amazon. 

Imitable Business Model 

Another weakness for Amazon is the fact that its business model can be duplicated in any part of the world, especially with the increased availability of technology. Some of Amazon’s competitors include eBay, Oyster, Netflix, and Barnes & Noble. 

Losing Profit Margins in Some Regions 

Although Amazon is among the most profitable companies, it records losses in some places. In areas such as India, Amazon records losses due to its emphasis on low shipping prices. Besides, people in developing countries are unable to purchase goods through Amazon due to financial constraints brought by the COVID-19 pandemic. 

Successful Activities 

Recently, Amazon released its fourth-quarter financial statement that reflected the success of its business model. In 2019, for example, the company recorded net sales of $280.5 billion, a significant increase from 2018 (Fildes & Perlet, 2019). This growth is attributed to the company’s ability to meet the needs of its clients. Today, more customers are subscribing to the Prime membership. According to the company’s CEO, Jeff Bezos, the Prime members surpassed 150 million in 2019 (Fildes & Perlet, 2019). This number shows that there is a significant demand for Amazon’s products, such as TV viewership and grocery purchase and delivery. Among the best-selling items from Amazon during the 2019 financial year include Fire TV Stick with Alexa Voice Remote, Echo Dot, and Echo Show 5. Besides, Fire TV has over 40 million active users across the world (Fildes & Perlet, 2019). These users can integrate the Fire TV into cars such as BMW and Fiat Chrysler. 

Furthermore, Amazon has noted significant returns in the music industry. Currently, Amazon Music has over 55 million active users across the world (“Fildes & Perlet, 2019). They are thus making Amazon a significant competitor for established companies such as Apple and Spotify. 

The company continues to build its brand value and reputation in different ways. For example, it has invested in green energy and climate change initiatives by supplying up to 1900 MW of renewable energy (Fildes & Perlet, 2019). In India, where Amazon had recorded losses before, there has been an initiative to supply electric vehicles as a means to address the increased greenhouse emissions in the country. As a result, Amazon has realized growth and created jobs for over 700000 Indians (Fildes & Perlet, 2019). Apart from the green energy initiatives, the company has donated items such as blankets and toys to charitable organizations. 

Issues Facing Amazon 

Over the past few years, Amazon has been facing challenges in the operating model. One of them is the payment of low minimum wage to its employees, which raised public outrage, considering that the company’s CEO is the richest person in the world. Amazon responded to this claim by stating that it pays its employees well and plans to raise the issue of minimum wage with the Congress (“Our Positions,” 2019). Amazon has also been accused of tracking the movements of immigrants through its facial recognition technology. However, the company insisted that the technology was meant to track down criminals such as child traffickers (“Our Positions,” 2019). Amazon’s platform has also been a victim of counterfeit products. While the company has introduced machine learning technology and hired over 4000 employees to prevent intellectual property violations, customers continue to claim that they have purchased counterfeit goods from the company’s site (“Our Positions,” 2019). Recently, Amazon’s clients raised concerns about the sale of their data to third parties. This issue has broken the trust between the customers and Amazon. Another issue is the company’s failure to pay taxes per US laws. 

Financial Overview 

Amazon’s financial results for the year 2019 are impressive. For instance, the company increased its operating cash flow from $30.7 billion in 2018 to $38.5 billion in 2019 (Fildes & Perlet, 2019). As a result, Amazon has managed to increase its operations and acquisitions. In the fourth quarter of 2019, its net income was $6.47 per diluted share compared to $6.07 in 2018 (Fildes & Perlet, 2019). This growth means that the stock earnings per share increased during the same period. However, Amazon has incurred significant expenses in the form of the purchase of property and equipment, long-term debts, and deferred income taxes. Notably, Amazon expects to reduce its expense by the end of the year 2020 due to the increased use of its servers (Fildes & Perlet, 2019). This strategy will result in increased revenues for the financial year 2020. Although its stock price has been declining, the firm has significant earnings per share. In 2019, Amazon’s basic earnings per share were $23.46 million (Fildes & Perlet, 2019). With the current focus on digital technology, Amazon is likely to record a significant increase in earnings per share by the end of 2020. 

Current and Future Business Strategies 

Currently, Amazon has invested in the entertainment, tech, and food industry. For example, it sells smart TV that is incorporated with Alexa, an interactive speaker (Fildes & Perlet, 2019). The Alexa speaker has improved features such as medication reminders and voice refills; its users can converse or ask it to play music from their favorite smartphone applications. Besides, Amazon Prime Video allows users to watch their favorite shows and movies. Recently, Amazon started producing its movies and series as a means to reinstate its position in the entertainment industry (Fildes & Perlet, 2019). Amazon has also ventured into the fashion industry. Through Amazon Fashion, clients can have a peak of the trending looks from influencers such as Louise Roe, Tylynn Nguyen, and Ayana Iman Gibbs (Fildes & Perlet, 2019). Amazon Fashion is also working with Refinery29 to introduce a pop-up holiday shop in New York City. Apart from featuring models, Amazon Fashion introduces clients to the latest brands such as Vineyard Vines, Tissot, and Swatch (Fildes & Perlet, 2019). Women can also preview the latest trends by browsing through Goodthreads. Notably, Amazon Music enables users to purchase albums and songs from their favorite artists. Recently, Amazon partnered with companies such as Audi, Volkswagen, Acer, BBC, TIM, TiVO, and Vestel to enhance its Voice Interoperability Initiative (Fildes & Perlet, 2019). This strategy was meant to enhance the customers’ experience of voice-enabled products. By teaming up with Whole Foods, Amazon has managed to deliver fresh groceries and whole foods to customers in different cities and towns. 

In the future, Amazon intends to venture into the green energy, tech, and automobile industry. In 2019, the company announced that it would unveil six renewable energy projects in the US and Europe as a means to address greenhouse emissions (Fildes & Perlet, 2019). This move came after the public concern about the rising carbon levels produced by tech companies. Besides, Amazon Web Services (AWS) announced its plans to unveil artificial intelligence services to enhance access to machine learning features among developers (Fildes & Perlet, 2019). This move will enable Amazon to enhance its cloud storage features and reduce the instances of intellectual property. Apart from investing in the tech industry, Amazon plans to venture into the automobile industry. The company’s CEO announced that Amazon intends to acquire Zoot in the hopes of unveiling self-driven cars (Palmer & Levy, 2020). This acquisition could also enhance Amazon’s logistics networks by delivering products on time and at affordable costs. 

Investment Perspectives 

I would invest in Amazon for retirement purposes. According to the Drucker Institute, Amazon is the best-managed firm, leading in the aspects such as financial strength, innovation, customer satisfaction, corporate social responsibility, and employee engagement (Fildes & Perlet, 2019). These elements are crucial for the long-term success of any company. Amazon has shown its dedication to continue expanding and improving its business model. Although it started as a retail company, Amazon now competes with tech firms such as Apple. In the future, the company’s stock is likely to rise, considering its investment in the automobile industry and green energy. Since it has effective management, I am expecting the company to continue making profits and increasing its share value in the future. 

Importance of Conducting Research 

As a manager, research is a crucial part of the decision-making process, especially when one intends to introduce structural changes or new products. A manager has to collect extensive information on the latest trends in consumer needs, market forces, and management practices. This data will shape the development of a business strategy. Market and consumer research, for example, informs a manager about the product offerings and pricing and advertising strategies. Besides, research also indicates the areas in which a business is underperforming and addresses them on time to reduce the operational costs. Research informs a manager about the strategies used by competitors and explores growth opportunities. 

References 

Fildes, D., & Perlet, D. (2019). News release details . Amazon. https://ir.aboutamazon.com/news-release/news-release-details/2020/Amazoncom-Announces-Fourth-Quarter-Sales-up-21-to-874-Billion/default.aspx 

Handley, L. (2020, June 30). Amazon’s brand value tops $400 billion, boosted by the coronavirus pandemic: Survey. CNBC News. https://www.cnbc.com/2020/06/30/amazons-brand-value-tops-400-billion-according-to-kantar-report.html 

Isidore, C. (2019, February 15). Despite record profits, Amazon didn’t pay any federal income tax in 2017 or 2018. Here’s why . CNN Business. https://edition.cnn.com/2019/02/15/tech/amazon-federal-income-tax/index.html 

Our positions . (2019). Amazon. https://www.aboutamazon.com/our-company/our-positions 

Palmer, A., & Levy, A. (2020, June 26). Amazon to buy self-driving technology company Zoox . CNBC News. https://www.cnbc.com/2020/06/26/amazon-buys-self-driving-technology-company-zoox.html