Amazon’s KPI Metrics
Amazon is a publicly traded company founded by Jeff Bezos in 1994. According to their website, their mission is “to be Earth's most customer-centric company. This is what unites Amazonians across teams and geographies as we are all striving to delight our customers and make their lives easier, one innovative product, service, and idea at a time” (www.amazon.com/about, n.d.). In the beginning, the company started in Bezos’ basement selling books. Twenty-six years later, the company serves the US and internationally, and spans the internet, web services, and physical store locations selling almost anything imaginable, even food. Amazon is continuing to evolve and recently purchased Whole Foods in 2017. By selling almost anything, Amazon has continued its mission of being the Earth’s most customer-centric company. Amazon has four principles according to their website. Two of these greatly relate to their mission statement. The first is “customer obsession rather than competitor focus” and second “long-term thinking” (www.amazon.com/about, n.d.).
Measuring how customer’s feel toward the company can be achieved in a variety of ways using Key Performance Indicator (KPI). A KPI is a metric that measures “the performance of a person, department, and/or company to achieve goals” (Sharma, n.d.). Many KPI are only available internally and used for the knowledge of the company or individual businesses only such as, exact cart abandonment rate, click through rate, and conversion rate. Other KPIs can indicate how customers feel toward the company and are available for public knowledge. Five of these indicators chosen are net profit, revenue growth, cash flow, how well the stock market is performing, and price-to-earnings ratio (P/E). These five indicators show that Amazon is continuing to strive toward their mission by continuing to grow and having visible positive metrics.
Net income or net profit is how profitable a company is. This KPI is used to calculate other useful metrics like profit margins, operating cash flow, earnings per share, and growth rate to name a few (Kenton, 2020). Amazon generates reports quarterly. The most recent report was released June 30, 2020 showing their second quarter financial records. For the second quarter of 2020, Amazon had a net income of 5.2 billion dollars. This shows that customers are purchasing their products at high volumes and making an impact in their mission. Although this number is great, their net profit margin is a mere 5.9%. This may be considered in the low range, but this follows their principle of being customer obsessed. Focusing more on providing customers with products and services, their profit margins suffer.
Revenue growth is a KPI used to assess a company’s performance. This is shown as a percentage and can help predict future performance (Chen, 2020). The formula used for the calculations of Amazon’s revenue growth was the current net income minus last year’s net income divided by last year’s net income. The current net income is 5.2 billion dollars. Last year it was 2.6 billion dollars at the same time. This gave Amazon a revenue growth of 100% over a one-year time frame. Having a growth rate this high shows consumers are happy and the future looks positive for the company. As Amazon continues expanding and investing, they are reaching more of the world and on track with their principles guided by their mission statement.
Operating cash flow is how much cash is generated in a specific time period. It measures the immediate health of the company (McGew, n.d.). This KPI indicates if a company is able to pay their debts. The second quarter of 2020, Amazon had an operating cash flow of 51.2 billion dollars. This is up 42% over the past year and up about 29% since the last quarter. The operating cash flow shows that Amazon is able to pay their debts and has room to expand. According to their financial record for the second quarter, Amazon disclosed the pandemic could affect their projections for the next quarter (Amazon, 2020). Having a high cash flow, as they do, could give them a cushion in case the pandemic would affect the company.
Amazon has been a publicly traded company since 1997. With the massive growth of the company, the price of stock has also soared. In the past twelve months, Amazon has grown on the NASDAQ about one thousand points from about 2,000 to now about 3,000 (NASDAQ, 2020). This is another KPI that shows consumers feel good about the company, are investing in the company just as Amazon is investing in its customers.
The P/E ratio is how much a stock is valued compared to how much the company generates in earnings (Berger, 2020). A company could be considered a growth or value investment depending on the P/E ratio. A company with a higher than average P/E ratio is a growth company. One with a lower P/E ratio is a value company. As of September 20, 2020, NASDAQ reported Amazon had a P/E ratio of 113.58. This is a higher than average P/E ratio making it a growth company. This type of KPI does not mean much for a stand alone metric, however it informs investors of the possible future projections of the company (Sharma, n.d.). Amazon’s high P/E ratio shows the company is expected to grow indicating it is following their principle of long-term thinking.
In conclusion, each of these metrics show Amazon has a positive growth trend. The KPIs all suggest Amazon is continuing to reach toward their mission of being the Earth’s most customer-centric company. They are leading with their principles of customer-obsessed rather than competitor focused and long-term thinking. If the data moving forward continues to show growth, Amazon could possibly achieve their mission and reach all over the Earth.
References
Amazon. (n.d.) Amazon. Retrieved on September 20, 2020 from www.amazon.com/about
Amazon. (2020, June 30). Amazon.com announces 2nd quarter Amazon’s Financial Records 2nd quarter results. Amazon. Retrieved on September 20, 2020 from https://ir.aboutamazon.com/news-release/news-release-details/2020/Amazon.com-Announces-Second-Quarter-Results/default.aspx
Berger, R. (2020, August 7). How to understand the P/E ratio. Forbes. Retrieved on September 20, 2020 from https://www.forbes.com/advisor/investing/what-is-pe-price-earnings-ratio/
Chen, J. (2020, June 28). Growth rates. Investopedia. Retrieved on September 20, 2020 from https://www.investopedia.com/terms/g/growthrates.asp
Kenton, W. (2020, April 5). Net income. Investopedia. Retrieved on September 20, 2020 from https://www.investopedia.com/terms/n/netincome.asp
McGew, M. (n.d.). The cash flow from operating activities in a financial statement. Chron. Retrieved on September 21, 2020 from https://smallbusiness.chron.com/cash-flow-operating-activities-financial-statement-31876.html
NASDAQ. (2020, September 20). AMZN. NASDAQ. Retrieved on September 20, 2020 from https://www.nasdaq.com/market-activity/stocks/amzn
Sharma, H. (n.d.). KPI meaning (what is KPI?), examples, calculations-tutorial. Optimize Smart. Retrieved on September 20, 2020 from https://www.optimizesmart.com/understanding-key-performance-indicators-kpis-just-like-that/