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Financial Statemet Analysis

Assignmtnt#2

Q1: What is the business, the products, the customers, what is the recent historic economic performance,

what are the recent strategic decisions taken the company?

the retail sale of consumer products and subscriptions in North America and Amazon.com, Inc. engages in

internationally. The company operates through three segments: North America, International, and Amazon

resale from vendors, as well as Web Services (AWS) segments. It sells merchandise and content purchased for

party sellers through physical stores and retail Websites, such as amazon.com, -those offered by third

amazon.ca, amazon.com.mx, amazon.com.au, amazon.com.br, amazon.cn, amazon.fr, amazon.de, amazon.in,

p, amazon.nl, amazon.es, and amazon.co.uk. The company also manufactures and sells amazon.it, amazon.co.j

readers, fire tablets, fire TVs, and echo devices; and provides Kindle -electronic devices, including kindle e

thors and publishers to make their books Direct Publishing, an online service that allows independent au

available in the Kindle Store. In addition, it offers programs that enable sellers to sell their products on its

s, Websites, as well as their own branded Websites; and programs that allow authors, musicians, filmmaker

app developers, and others to publish and sell content. Further, the company provides compute, storage,

database, and other AWS services, as well as fulfillment, publishing, digital content subscriptions, advertising,

t services. Additionally, it offers Amazon Prime, a membership program, branded credit card agreemen-and co

which provides free shipping of various items; access to unlimited streaming of movies and TV episodes; and

ontent creators. The company was other services. It serves consumers, sellers, developers, enterprises, and c

in 1994 and is headquartered in Seattle, Washington.by current CEO and Chairman Jeffrey P. Bezos founded

grossing online retailers, with $178 billion in net sales and $320 billion -Amazon is among the world's highest

-estimated GMV in 2017. Online retail sales accounted for 61% of net revenue in 2017, followed by thirdin

-party seller services (18%), Amazon Web Services (10%), Prime membership fees and other subscription

rmats (3%), and advertising/cobranded credit cards (3%). based services (6%), Whole Foods and other retail fo

AWS sales in 2017.-International segments totaled 33% of Amazon's non

launch, have exceeded 100 million paid Prime members globally. In 2017 Amazon -13 years post – Prime

n items with Prime worldwide, and more new members joined Prime than in any shipped more than five billio

day -both worldwide and in the U.S. Members in the U.S. now receive unlimited free two –previous year

Singapore, the Netherlands, shipping on over 100 million different items. amazon expanded Prime to Mexico,

and Luxembourg, and introduced Business Prime Shipping in the U.S. and Germany. amazon keep making

Day delivery now in more than -Day and Prime Free One-Prime shipping faster as well, with Prime Free Same

Prime Now is available in more than 50 cities worldwide across nine countries. Prime 8,000 cities and towns.

Day 2017 was the biggest global shopping event ever (until surpassed by Cyber Monday), with more new

Prime members joining Prime than any other day in our history .

It’s exciting to see Amazon Web Services, a $20 billion revenue run rate business, accelerate its already –AWS

healthy growth. AWS has also accelerated its pace of innovation – especially in new areas such as machine

learning and artificial intelligence, Internet of Things, and serverless computing. In 2017, AWS announced

more than 1,400 significant services and features, including Amazon SageMaker, which radically changes the

accessibility and ease of use for everyday developers to build sophisticated machine learning models. Tens of

thousands of customers are also using a broad range of AWS machine learning services, with active users

increasing more than 250 percent in the last year, spurred by the broad adoption of Amazon SageMaker .

In 2017, for the first time in history, more than half of the units sold on Amazon worldwide – Marketplace

were from our third-party sellers, including small and medium-sized businesses (SMBs). Over 300,000 U.S.-

based SMBs started selling on Amazon in 2017, and Fulfillment by Amazon shipped billions of items for SMBs

worldwide. Customers ordered more than 40 million items from SMBs worldwide during Prime Day 2017,

growing their sales by more than 60 percent over Prime Day 2016. Amazon Global Selling program (enabling

SMBs to sell products across national borders) grew by over 50% in 2017 and cross-border ecommerce by

SMBs now represents more than 25% of total third-party sales .

ng items selli-enabled devices among the best-Customer embrace of Alexa continues, with Alexa – Alexa

across all of Amazon. We’re seeing extremely strong adoption by other companies and developers that want

to create their own experiences with Alexa. There are now more than 30,000 skills for Alexa from outside

developers, and customers can control more than 4,000 smart home devices from 1,200 unique brands with

Alexa .

Amazon devices – 2017 was our best year yet for hardware sales. Customers bought tens of millions of Echo devices, and Echo Dot and Fire TV Stick with Alexa were the best-selling products across all of Amazon – across all categories and all manufacturers. Customers bought twice as many Fire TV Sticks and Kids Edition Fire Tablets this holiday season versus last year. 2017 marked the release of our all-new Echo with an improved design, better sound, and a lower price; Echo Plus with a built-in smart home hub; and Echo Spot, which is compact and beautiful with a circular screen. We released our next generation Fire TV, featuring 4K Ultra HD and HDR; and the Fire HD 10 Tablet, with 1080p Full HD display. And we celebrated the 10 th anniversary of Kindle by releasing the all-new Kindle Oasis, our most advanced reader ever. It’s waterproof – take it in the bathtub – with a bigger 7” high-resolution 300 ppi display and has built-in audio so you can also listen to your books with Audible.

2017 was the best year yet for hardware sales. Customers bought tens of millions of Echo – Amazon devices

devices, and Echo Dot and Fire TV Stick with Alexa were the best-selling products across all of Amazon –

across all categories and all manufacturers. Customers bought twice as many Fire TV Sticks and Kids Edition

Fire Tablets this holiday season versus last year. 2017 marked the release of all-new Echo with an improved

design, and a lower price .

Q2: What are the key success factors and risks associated with the firm’s chosen competitive strategy?

Key success based on four principles: “Customer obsession rather than competitor focus, passion for invention, commitment to operational excellence, and long-term thinking.” By building on these principles, Amazon has developed a range of sustainable competitive advantages and became one of the most disruptive forces in the retailing industry. In fact, Amazon played a major role in the structural shift away from traditional brick-and-mortar retailing, especially in commoditized categories with low switching costs for consumers and intense price competition. While well-known companies like Borders, Linens ‘N Things, or Circuit City already left the industry, names like Barnes & Noble, RadioShack, or Office Depot struggle to match up with Amazon. This trend is further intensified by consolidation among mass merchants like Wal-Mart and direct-to- consumer sales by companies like Apple, for example. However, Amazon still faces intense competition from a variety of players in its rapidly evolving industries. Among them are not only physical retailers and other online retailers, but also companies that manufacture consumer electronics, companies 5 that provide cloud computing and data storage, companies that provide e-commerce services like website development, fulfillment, and payment processing, as well as web search engines, comparison shopping websites, publishers, and other media companies.

Amazon’s original focus was on selling books, and needless to say, they’ve adapted quite a bit. You can purchase anything—anything—through Amazon with the blink of an eye and have it delivered to your doorstep the next day. If that’s not convenience then I don’t know what is. Quite honestly, I don’t even know where to begin with Amazon because there’s pretty much nothing they don’t do. The point is, they’ve evolved this far because they value change and they value adaptability. That’s why the merger between Amazon and Whole Foods makes sense. Here you have two completely different companies fuzing together to forge not only a new alliance, but a new opportunity that, as a result, offers a new competitive advantage: options--a one-stop-shop for everything you need, now including organic produce.

Q3: Does the firm currently have the resources and capabilities to deal with the key success factors and risks?

To defend and further extend its market position, Amazon identifies selection, price, and convenience as the

major competitive factors for its retail business, as well as quality, speed, and reliability, for its seller and

enterprise services. In fact, Amazon’s strong brand recognition has come to reflects exactly these attributes,

which is a rare combination among retailers that combined with its continued efforts to enhance customer

experience represents one of Amazon’s major competitive advantages. On top of that, it is the low-cost

operation of its online platform that allows the company to charge lower prices and strengthen its

competitive position. More precisely, its fulfillment and distribution network is more cost effective and also

easier to scale than having a large physical presence like traditional retailers. Additionally, Amazon has cost

advantages from current U.S. tax laws, where online retailers only have to collect sales taxes in states where

they maintain a physical presence. Another unique advantage over competitors is a so-called network effect,

which essentially is a result of Amazon’s low prices, vast selection and user-friendly interface. These attract

millions of customers, which in turn either attract other merchants to the Amazon platform or encourage

wholesalers and manufacturers selling directly to Amazon. This effect is further intensified through additional

services including Amazon Prime, customer reviews and product recommendations, as well as an expanded

selection of both physical products and digital content

Q4: Has the firm made irreversible commitments to bridge the gap between its current capabilities and the

requirements to achieve its competitive advantage?

arkets to fuel its aggressive expansion Amazon has incurred higher operating expenses in international m

plans. The company has had to spend considerably, with a significant portion of these operating expenses

allocated towards fulfillment expenses, marketing expenses and promotion costs, which are higher than

in markets where Amazon already has a strong presence. This trend is expected to continue in the expenses

near term as the company prepares to battle international competition from the likes of Alibaba. As a result,

low in the near future operating margins are likely to remain relatively .

Amazon completed the Whole Foods acquisition in late August and announced a few new developments in

the AWS businessand the consumer business (mainly Alexa and Echo). While these developments in the

term results, the company’s current growth is expected to come from -long consumer market could help drive

commerce as well as AWS. In the first quarter, Amazon expects its overall -existing businesses, including core e

y basis to around $49 billion-o-42% on a y-revenue to grow around 34

Q5: Has the firm structure its activities (such as research and development, design, manufacturing, marketing

and distribution and support activities) in a way that is consistent with its competitive strategy?

onal efficiency of its fulfillment and distribution network, which One of Amazon's key advantages is its operati

satisfies consumers' increasing demand for free and expedited shipping. This allows Amazon to generate

d website enhancements strong cash flow, which in turn can be reinvested in advertising, customer service, an

that keep its marketplace robust and customer loyalty strong. In fact, we believe Amazon's brand has come to

a rare combination --represent low prices, a wide selection, convenience, and superior customer service

among retailers.

-on also benefits from a network effect, as low prices, an expansive breadth of products, and a userAmaz

friendly interface attract millions of customers, which in return attract merchants of all kinds to Amazon.com,

rketplace platform (which represented more than 50% of total party sellers on Amazon's Ma-including third

units sold in 2017) and wholesalers/manufacturers selling directly to Amazon. According to research, the

hen other online percentage of traffic to Amazon derived from search has fallen in recent years at a time w

retailers have become more dependent on search. We think this indicates that Amazon is increasingly

becoming the starting point for online purchases, akin to a mall anchor tenant. Additionally, customer

d wish lists increase in relevance as more consumers and products are reviews, product recommendations, an

added to the Amazon platform, enhancing its network effect.

Q6: Is the company’s competitive advantage sustainable? Are there any barriers that make imitation of the

fficult?firm’s strategy di

mortar retailers is under way, particularly in commoditized -and-A shakeout among traditional brick

categories. With nonexistent customer switching costs and intense competition, we've already seen Circuit

Shack exit the retail landscape, while names like Barnes & Noble, City, Linens 'n Things, Borders, and Radio

Sears, office superstores, and a host of other retailers struggle to reverse deteriorating fundamentals. Market

-n this trend, as have directconsolidation among mass merchants like Walmart and Costco has played a role i

equipment manufacturers like Apple and Samsung. However, we -consumer investments by key original-to

view Amazon as the most disruptive force to emerge in retail in several decades. Its operational efficiency,

d laser focus on customer service provide it with sustainable competitive advantages that network effect, an

traditional retailers cannot match; this should yield additional market share gains in the years to come.

d AWS), and content investmentsDespite ongoing fulfillment, technology (hardware devices an

The American Customer Satisfaction Index recently announced the results of its annual survey, and for the

year in a row customers ranked Amazon #1. The United Kingdom has a similar index, The U.K. Customer th 8

time in a row Amazon U.K. ranked th Index, put out by the Institute of Customer Service. For the 5Satisfaction

#1 in that survey. Amazon was also just named the #1 business on LinkedIn’s 2018 Top Companies list, which

fessionals in the United States. And just a few weeks ago, ranks the most sought after places to work for pro

Harris Poll released its annual Reputation Quotient, which surveys over 25,000 consumers on a broad range of

year in a rd for the 3 topics from workplace environment to social responsibility to products and services, and

row Amazon ranked #1.

Q 7: Are there any potential changes in the firm’s industry structure (such as new economic conditions, new

technologies, foreign competition, changes in regulation, change in customer requirements) that might

dispute the firm’s competitive advantage? Is the company flexible enough to address the change?

In 2017 Amazon said in a regulatory filing that its business now faces a new set of risks: "trade and

protectionist measures." While the filing, its annual report with the Securities and Exchange Commission,

doesn't specifically mention President Trump, the new risks are a clear reference to the possible changes that

may come to global commerce under the new administration .

President Trump stating that Amazon is taking unfair advantage of the USPS and pays little or no taxes, and

that the Department of Justice should look into potential antitrust cases. We think it is difficult to make an

antitrust case, as Walmart generated $500 billion in revenue during 2017 versus Amazon's $178 billion in

revenue (on estimated GMV of $320 billion). Potential tax changes are more of an unknown and we could

conceivably see new revenue- or user-based tax structures like recent EU proposals, though this would likely

take time to put in place, given the implications for other marketplace business models. With respect to USPS

shipping fees, we've always thought this could be a tangible risk to the Amazon investment story, though not

one that would break its model. At this point, we'd say there is nominal risk of increased USPS fees, as any

pricing changes could also lead to higher prices for consumers and increased costs for other merchants.

Additionally, Amazon still has competitive countermeasures at its disposal, including fulfilling more products

through its own logistics infrastructure or threatening to move more jobs overseas

Bank of America analyst Justin Post says raising Amazon's Postal Service shipping fees likely wouldn't have

much impact on the company in the long term. "We assume higher fees would be offset by Amazon moving

volumes to other shippers or just accelerating their own fulfillment build out," Post says.

Work cited

Form 10-K and form 8-K, sec.gov

Morningstar.com

forbes.com

finance.yahoo.com