Economics paper

Economic Decision-Making and Economic Growth

Economic Decision-Making and Economic Growth

Amazon.com

Purdue University Global

GB540M3

Michelle Freeman

October 8, 2020

A Seattle based company called Amazon opened as an online bookseller in 1994. Within the first month of business, the retailer shipped books to all 50 US states and 45 countries around the globe. The motto was "get big fast," according to the company's founder Jeff Bezos. They eventually became an enormous e-commerce conglomerate offering everything from food items to furniture, revolutionizing the way people shop.

Amazon expanded in 1998 and started selling music and computer games. At the same time, Amazon expanded internationally and purchased online bookstores in Germany and the UK. Today they have over 310 million active users and 100 million subscribers globally. In the mid-2000s, they launched a web service and expanded into digital services, and today these remain a major portion of the company’s income despite their expansion of the retail division.

In 2000 they offered other merchants the opportunity to list and later stock their wares on the Amazon digital shelves and warehouse, which increases their selections without affecting the company's cash. They launched the Kindle e-reader in 2007, acquired the Zappos, and became the largest seller of footwear and clothing, creating total sales of $70 billion in 2018. In 2017 they acquired Whole Foods and became the 5th largest grocery seller in 2018 grossing $695 billion in sales. It is Amazon's embrace of technology that has propelled them to become one of the most successful online retailers.

Economic Factors affecting Amazon

1. The economic stability of developed markets enhances Amazon’s chances of success by minimizing the risk of expansion.

2. Increased disposable income in developing countries leads to increased financial performance.

3. The political-economic decline of China is a danger to Amazon’s business.

Political Factors that affect Amazon:

1. The political stability witnessed in developed countries creates expansion opportunities for companies like Amazon.

2. Government support for e-commerce facilitates continued expansion.

3. Governmental support for cyber-security improves business conditions.

Social Factors affecting Amazon

1. Increased wealth disparity threatens the company’s revenue potential.

2. Increased consumer interest creates opportunities for e-commerce growth.

3. Consumer online buying habits will benefit Amazon’s market penetration.

	Financial Performance in Millions
Quarter End	6/30/2020	3/31/2020	12/31/2019	9/30/2019
Revenue	$88,912	$75,452	$87,437	$69,981
COGS	$52,660	$44,257	$53,977	$36,337
Gross Profit	$36,252	$31,195	$33,460	$28,679
S&A Expenses	$19,731	$17,811	$19,776	$16, 267
Operating Income	$5,843	$3,989	$3,880	$3,157

Comparing the second quarter of 2019 to 2020, Amazon has increased its revenue by 40%from $63.4to $88.9 billion, net income went from $2.6 to $5.2 billion, and per-share earnings went from $5.22 to $10.30. Sales for North America increased by 43% to $55.4 billion, and international sales also saw an increase of 38% to $22.7 billion. These numbers are an indication that Amazon is effective at generating sales and revenue as well as effective with spending and managing their operating expenses.

SWOT Analysis

Strengths

1. Amazon has strong brand recognition as well as strong consumer confidence.

2. The company has strong business diversity, which makes it a formidable competitor.

3. Amazon has rapid technology innovation making it easier for them to respond to trends.

Weaknesses

1. The company's model is easy for other firms to imitate

2. Amazon has restricted entry into developing markets

3. The company’s limited brick and mortar presence creates a barrier to expansion for non-online markets

Opportunities

1. Amazon has a penetration opportunity in developing markets

2. The opportunity for expansion to brick and mortar presence

3. The company has an opportunity to strengthen its corporate social responsibility strategy through partnerships

Threats

1. Competition threats against the company by firms like Walmart, Netflix, Home Depot, and others

2. The security and integrity of the firm is threatened by cybercriminals

3. The company also risks reducing its market share due to an imitated business model.

The factors that Amazon needs to predict, plan, and adjust in the future would be the following. Amazon needs to analyze countries by the need for an online retailer.

1. The political factors-The extent to which the government influences the economy plays a major role in planning for future considerations. When government policies favor business growth, Amazon will consider expansion and vice versa.

2. Economic factors-Economic factors are significant players in any industry. For example, inflation rates affect the pricing of products and purchasing power. If the inflation rates are favorable, the company will invest more and less if the inflation rates are high, which may lower the financial returns of the company.

3. Technology-Technology affects the operations of industry, either favorably or unfavorably. As an online store, technology plays a crucial role in the business, and its advancements will have a profound influence on the company. The business will deploy technology that enhances productivity and innovation in the company. Technology should also be friendly to consumers.

4. Legal factors-Amazon operates as a multinational company that is directly affected by both national and international laws. These factors affect the agility of the business and its future operations. For example, India is one of Amazon's important markets, and India policies will determine the waves of the company.

References

Amazon Income Statement 2005-2020 | AMZN. (n.d.). MacroTrends. https://www.macrotrends.net/stocks/charts/AMZN/amazon/income-statement?freq=Q

Bloomberg - Are you a robot? (n.d.). Bloomberg. https://www.bloomberg.com/tosv2.html?vid=&uuid=1b53cfc0-0bd1-11eb-91fe-c9969fa891fc&url=L2dyYXBoaWNzLzIwMTktYW1hem9uLXJlYWNoLWFjcm9zcy1tYXJrZXRzLw==

Greenspan, R. (2019a, May 20). Amazon.com Inc. PESTEL/PESTLE Analysis, Recommendations. Panmore Institute. http://panmore.com/amazon-com-inc-pestel-pestle-analysis-recommendations

Greenspan, R. (2019b, June 22). Amazon.com Inc. SWOT Analysis & Recommendations. Panmore Institute. http://panmore.com/amazon-com-inc-swot-analysis-recommendations

Financial Performance

Revenue 44012 43921 43830 43738 88912 75452 87437 69981 COGS 44012 43921 43830 43738 52660 44257 53977 36337 Gross Profit 44012 43921 43830 43738 36252 31195 33460 28679 S & A Expenses 44012 43921 43830 43738 19731 17811 19776 0 Operating Income 44012 43921 43830 43738 5843 3989 3880 3157

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