Amazon.com Business Combinations and Financial Results Analysis (Term Paper Sample)

Assignment 1: Amazon.com Business Combinations and Financial Results Analysis
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Amazon.com
Amazon.com has in the last few years thrived to become the largest online retailer. This can be linked to its huge product range, global presence and high returns which have enabled the company to acquire a number of companies and equities. This paper is a discussion of Amazon.com’s growth strategies and the impact they have had on the giant seller.
Amazon.com has utilized a number of growth strategies including market expansion, diversification and acquisition.
Market expansion encompasses selling products in new markets; a strategy that Amazon has increasingly used to reach additional markets across the globe and consequently improved sales and profitability. This has been highly successful as Amazon.com is now a household name worldwide and widely used by shoppers across the globe. Amazon has successfully become the number one online seller.
Amazon.com continues to diversify its business and its objective is to have the earth’s biggest selection. Amazon began diversifying from its earlier business of selling books, audio and video to stoking over 18 million items in 14 categories including apparel, furniture, toys and food among others. Amazon is also leveraging cloud computing and investing heavily on its kindle and tablet business, ventures that will see the company gain significantly from communication technology users. Diversification has worked for Amazon, helping it achieve increased profitability and acquire greater markets.
Amazon’s acquisitions have increased tremendously over the years and this seems to be a highly preferred market growth strategy. While each acquisition may not have immediately led to increased profits due to transitional costs and other related expenditures, there has been a noteworthy growth in Amazon.com’s business empire and subsequent gradual increase in profitability. The acquisitions strategy can therefore be said to working successfully. The next section takes a further look into Amazon.com’s acquisitions in the last five years and the impact they have had in profitability.
When Amazon bought Quidsi, the owner of Diapers.com and Soap.com in 2010, the move was seen to be strategic as it promised a ready market for Amazon. The impact of this acquisition on profitability may not be determined using 2010 data, given that the deal was made in 2010. Records however indicate that profits in 2010 rose from $902 in 2009 to $1,1152 in 2010; an indication that the purchase did not destabilize the company, which may be explained by increased sales during the year. Profitability for the company fell to $631 million the following year and this raises the question of Quidsi’s contribution to Amazon’s profitability.
However, it is imperative to note that Amazon.com spent $705 million in 2011 on acquisitions alone. One of the acquired companies was ‘The Book Depository’, a UK indie book seller and a major rival to Amazon. A look at the 2011 financial year reflects the impact of this expense on the profitability of the company during the period. The net income was at $631 million, a significant decrease from the previous year’s $1,152 million. It was during the following year that Amazon.com made a loss of $39 million and this could be associated with the huge acquisition expenditure.
The trend in profitability maybe linked to the acquisitions indicated above but Amazon.com is more focused on long-term growth. Gopinath (2003), notes that when a company makes a major investment, returns may not be expected immediately and that it is normal to suffer declining profits as the investment stabilizes. The investments are creatable and in the case of The Book Depository for example, Amazon took a smart move by absorbing a main competitor. This means that Amazon.com now has greater market power and hence higher profitability levels are expected. Amazon will also gain immensely from Diaper.com, formerly a major competitor in diaper, wipes, clothing, car seat and formula sales. It means that Amazon will have greater control of the market and hence improve profitability with time (Stanwick and Stanwick, 2001). Like any other market growth strategy that Amazon.com undertakes, the aim is to become the largest online seller and the acquisition strategies are thereby creatable. It will also improve Amazon’s competitive edge over major online stores including Wal-Mart and Target (Struck, 2010).
In 2012, Amazon bought Kiva Systems, a warehouse robot making company for $775. This was considered the company’s largest acquisition after Zappos which was purchased in 2009 for $847. It is during the same year that Amazon acquired TeachStreat, a company that matches teachers and students. During this year, Amazon records a loss of $36 million and this can be directly linked to the huge investment in acquisition of Kiva Systems. Despite the huge loss however, the strategy can be considered creatable because it is bound to improve the company’s prospects in the long-run. This is a company whose main aim is automation of warehouses and this will benefit Amazon immensely in logistics for its products (Rusli, 2012). Furthermore, profits began improving in 2...