Amazon.com, Inc.

Summary

Amazon.com, Inc. engages in the retail sale of consumer products and subscriptions in North America and internationally. The company operates through three segments: North America, International, and Amazon Web Services (AWS). It sells merchandise and content purchased for resale from third-party sellers through physical and online stores. The company also manufactures and sells electronic devices, including Kindle, Fire tablets, Fire TVs, Rings, and Echo and other devices; provides Kindle Direct Publishing, an online service that allows independent authors and publishers to make their books available in the Kindle Store; and develops and produces media content. In addition, it offers programs that enable sellers to sell their products on its websites, as well as its stores; and programs that allow authors, musicians, filmmakers, Twitch streamers, skill and app developers, and others to publish and sell content. Further, the company provides compute, storage, database, analytics, machine learning, and other services, as well as fulfillment, advertising, publishing, and digital content subscriptions. Additionally, it offers Amazon Prime, a membership program, which provides free shipping of various items; access to streaming of movies and series; and other services. The company serves consumers, sellers, developers, enterprises, and content creators. Amazon.com, Inc. was incorporated in 1994 and is headquartered in Seattle, Washington.

Segments covered by Amazon

E-Commerce:

Amazon is one of the world's largest online marketplaces, selling a vast array of products, including electronics, books, apparel, household items, and more.

Cloud Computing services:

Amazon provides several cloud computing services to businesses and individuals, via its platform called Amazon Web Services (AWS) and it provides the following:

a.     Infrastructure as a service (IaaS): access to virtual servers, storage and networking withouth the need for a physical hardware

b.     Platform as a service (PaaS): ability to create applications using pre made platform templates

c.     Software as a service (SaaS); ability to use certain applications without buying them

Digital Content:

Amazon offers a variety of digital content platforms such as

a.     Amazon Prime Video for streaming movies and TV shows

b.    Amazon Music for streaming music

c.     Kindle for e-books.

Logistics and Delivery:

a.     Amazon has developed an extensive logistics and delivery network to fulfil orders efficiently, including its own delivery service called Amazon Logistics.

Smart Home Devices:

a.     Amazon has introduced various smart home devices under the Amazon Echo brand, powered by the virtual assistant Alexa. These include smart speakers, smart displays, and smart home automation devices.

Grocery and Food Delivery:

a.     Through Amazon Fresh, Whole Foods Market (acquired by Amazon in 2017), and Amazon Prime Now, the company provides grocery and food delivery services. Amazon Prime Now, will stop existing and the fast delivery service will be combined with the third party partners

Healthcare:

a.     Amazon has expanded into the healthcare sector with initiatives such as Amazon Pharmacy, offering prescription medication delivery, and Amazon Care, a virtual healthcare service for employees.

Entertainment and Media:

a.     Amazon Studios produces and distributes original movies and TV shows through Amazon Prime Video. The company has also ventured into sports broadcasting, streaming live sports events.

Advertising:

a.     Amazon has a growing advertising business, offering advertising solutions for brands to reach customers on its platforms through Amazon Advertising.

Hardware and Consumer Electronics:

a.     In addition to its smart home devices, Amazon manufactures and sells hardware products like Fire tablets, Kindle e-readers, and Fire TV streaming devices.

Other include:

a.     Robotics (amazon scout etc), space exploration (blue origin), AI and machine learning

Amazon market shares across key segments

The previous section showcases Amazon’s breakdown of revenue and the most important segments to Amazon from the perspective of revenues are: e-commerce, third party seller services, AWS and subscription services. Below figures will illustrate the market share of Amazon in some of those segments.

US e-commerce market share (June 2022)

The US e-commerce is clearly dominated by Amazon followed by Walmart, Apple and eBay. Other players hold maximum of 2% of the market. Some related statistics about Amazon are as follows:

The US e-commerce is clearly dominated by Amazon followed by Walmart, Apple and eBay. Other players hold maximum of 2% of the market. Some related statistics about Amazon are as follows:

2021 e-commerce Amazon revenue	USD 220 billion
Number of active sellers (2022)	9.7 million
Number of shipments in 2021	7.7 billion
Global number of users (2022)	310 million
Number of fulfilment centres (2023)	185
Total area of fulfilment centres (2019)	150 mln sq ft

Smart speaker market share (2020)

Similarly, to e-commerce, Amazon dominates the market of smart speakers with the help of Alexa

In general, the most demanded products from Amazon can be shown in the below diagram. Amazon is most popular with electronics goods followed by clothing with shoes and then home and furniture. The least frequent orders are pet supplies.

Popularity of Amazon’s as an e-commerce does not end here. Amazon is also the place where more than half of online purchasers start their search.

Cloud computing market

In 2019, Amazon outperformed its major competitors across the entire cloud computing market with a total market share of 18%. Out of the cloud computing, Amazon is most popular among Infrastructure as a service segment with a eye watering 45% of market share. In q1 2022, AWS is still the preferred provider of cloud computing services with Azure (cloud computing provided by Microsoft) catching up but still below.

Some of the cloud computing market trends that AWS could take advantage of are:

1. The cloud becomes more popular with SMEs
2. Businesses look towards multi-cloud solutions
3. The cloud gaming market is expanding

Overall, the competition for Amazon across its key segments can be summarised in the below table:

Segment of competition	Main competitors
E-commerce	Apple, Walmart, eBay, Homedepot, Costco, Shopify
Cloud Computing	Microsoft, Google, Sales Force, Alibaba, several other chinese competitors
Digital content	Netflix, Spotify, Apple,
Smart home appliances	Alibaba, Xiaomi, Google, Baidu, Apple, Echo dot

On-going and future Amazon projects

Renewable energy

In septemebr 2022, Amazon announced that it will help tackle the global warming and will contribute to making the planet more green. With that Amazon announced new 379 renewable energy projects across the globe, where it plans to construct solar and wind panels. The aim is to supply 4.6 million houses with renewable energy while also making sure that the business is 100% renewable energy dependent ie all the business units of Amazon will solely use its own renewable energy. Poland and france were planned to host the first projects, and in October 2022, a spanish renewables investment platform Q-Energy last closed financing for a solar farm in Poland that will generate electricity for Amazon. Similarly, in 2022, Israeli flexible solar module manufacturer Apollo Power announced it will provide its products Amazon to build at one of its facilities in France.

In 2019, Amazon co-founded The Climate Pledge, further showing its commitment to net-zero carbon world. It aims to reach this status by 2040—10 years ahead of the Paris Agreement.

The Pledge has now over 375 signatories, including IBM, Microsoft, PepsiCo, Siemens, Unilever, Verizon, and Visa. However, it does not stop ther. Amazon partnered with Rivian (EV company) and ordered over 100,000 (to be on streers by 2030) electric vehicles to be doing carbon free delivery, 3,000 of which are already in the streets!

Project Kuiper and sattelite network

Project Kuiper is yet another act of Amazon on the way of completely changing the world. Amazon identified a problem where traditional antennas can be expensive, hard and heavy to construct, making it difficult for certain regions in the world to access broadband or mobile network. Amazon’s Project Kuiper is a solution to this problem. The project is a satellite network which will help people access broadband and internet. The way it works is that a household purchases one of the antennas, referred to as “customer terminal” (which is cheaper, lighter and easier to install) from the below pictures and connects it to the satellites above (in the sky).

Below table will shows the comparison between three customer terminals.

Customer terminal type:	Cost of installation:	Speed of terminal	Size	Weight
Medium sized terminal aimed at residential and small buiness customers	$400	400 megabits per second (Mbps)	Less than 11 inches square and 1 inch thick	Less than 5 pounds
Ultra compact terminal aimed for a personal use. Light and transportable	NA	100 megabits per second (Mbps)	7 square inches	1 pound
A high-bandwidth design for the most demanding needs	NA but aimed at governments, telecoms and enterprises	1 gigabit per second (Gbps)	19 inches by 30 inches	NA

Terminals for residential and small business customers

Ultra compact terminal

A high-bandwidth design for the most demanding needs

Amazon industrial innovation fund

In april of 2022, Amazon committed to create a USD 1 billion “venture capital” like platform called Amazon industrial innovation fund. The aim of such fund is to ultimately improve its operations, logistics, speed of parcel deliveries and simply take Amazon to a new level. The “fund” will invest in companies (not owned by Amazon) that incrementally enhance delivery speed and further improve the experience of employees working in warehousing and logistics fields.

The first round of investments of the round involves tech and safety wearing ventures which are summarised below:

Investee	Main offerings	Website
Modjoul	Wearable safety technology, personalised ads and safety signals	https://modjoul.com
Vimaan	Computer vision and artificial intelligence solutions to improve inventory management	https://vimaan.ai
Agility Robotics	Bi-pedal walking robot	https://agilityrobotics.com
BionicHIVE	Autonomous robotic solution facilitating with shelving racks and boxes in warehouses	https://www.bionichive.com
Mantis Robotics	Tactile robotic arm that uses sensor technology to cohesively work alongside people	https://www.mantis-robotics.com

Organisational Structure

Beneficial owners

As of the 2023 Proxy Statement, sole voting and investment power is granted to individuals who serve as directors and/or executive officers, the directors and executive officers as a group, and individuals and organisations that own 5% or more of the total common stock. The beneficial owners list was released as following:

Beneficial owner	Share stake
Jeffrey P. Bezos	12.3%
The Vanguard Group, Inc.	6.9%
BlackRock, Inc.	5.8%
Andrew R. Jassy	0.02%
Keith B. Alexander	<0.01%
Edith W. Cooper	<0.01%
Jamie S. Gorelick	<0.01%
Daniel P. Huttenlocher	<0.01%
Judith A. McGrath	<0.01%
Indra K. Nooyi	<0.01%
Jonathan J. Rubinstein	<0.01%
Patricia Q. Stonesifer	<0.01%
Wendell P. Weeks	<0.01%
Brian T. Olsavsky	<0.01%
Douglas J. Herrington	<0.01%
Adam N. Selipsky	<0.01%
David A. Zapolsky	<0.01%
All directors and executive officers as a group (16 persons)	12.3%

Other major stockholders

Stockholders	Share stake
SSgA Funds Management, Inc.	3.24%
Fidelity Management & Research Co...	2.47%
T. Rowe Price Associates, Inc. (I...	1.85%
Geode Capital Management LLC	1.61%
Norges Bank Investment Management	0.96%
Capital Research & Management Co....	0.92%

Financials

Historic

Most recent quarter

During the three month period ending on 31st March 2023 Amazon Inc achieved revenues of $127.36 billion, showing a 14,64% decrease to the last quarter of 2022. Despite that, it achieved a net income of $3.17 billion, marking an impressive increase to the previous quarter, when a $278 million net income was reported. A significant cut to operating expenses was observed, that resulted to the operating margin increasing from 1.83% to 3.75%.

Most recent year

In the end of the fiscal year of 2022 Amazon, Inc reported a loss of $5.94 billion. The revenue and total assets experienced an slight increase compared to 2021, interrupting the exponential increase trend observed in the previous years. A 23.35% increase in operating expenses can partially account for the loss, as it outweighs the 14% increase in gross profit, resulting in a lower operating income. The increase in expenses can be linked to the Rivian Automotive (RIVN) investment that Amazon originally made in 2019. The company went public in 2021, and lost 75% of its value during the next year, therefore not returning the expected turnovers.

All periods

Year	Year end date	Income Statement		Balance Sheet	Employees
		Revenues($million)	Net profits ($million)	Total Assets($million)
1	31/12/1997	$148	-$31	$149	614
2	31/12/1998	$610	-$125	$648	2,100
3	31/12/1999	$1,640	-$720	$2,466	7,600
4	31/12/2000	$2,762	-$1,411	$2,135	9,000
5	31/12/2001	$3,122	-$567	$1,638	7,800
6	31/12/2002	$3,933	-$149	$1,990	7,500
7	31/12/2003	$5,264	$35	$2,162	7,800
8	31/12/2004	$6,921	$588	$3,248	9,000
9	31/12/2005	$8,490	$359	$3,696	12,000
10	31/12/2006	$10,711	$190	$4,363	13,900
11	31/12/2007	$14,835	$476	$6,485	17,000
12	31/12/2008	$19,166	$645	$8,314	20,700
13	31/12/2009	$24,509	$902	$13,813	24,300
14	31/12/2010	$34,204	$1,152	$18,797	33,700
15	31/12/2011	$48,077	$631	$25,278	56,200
16	31/12/2012	$61,093	-$39	$32,555	88,400
17	31/12/2013	$74,452	$274	$40,159	117,300
18	31/12/2014	$88,988	-$241	$54,505	154,100
19	31/12/2015	$107,006	$596	$65,444	230,800
20	31/12/2016	$135,987	$2,371	$83,402	341,400
21	31/12/2017	$177,866	$3,033	$131,310	566,000
22	31/12/2018	$232,887	$11,261	$162,648	647,500
23	31/12/2019	$280,522	$13,976	$225,248	822,500
24	31/12/2020	$386,064	$24,178	$321,195	1,298,000
25	31/12/2021	$469,822	$38,151	$420,549	1,608,000
26	31/12/2022	$513,983	-$5,936	$462,675	1,541,000

Forward

Method

To evaluate the forecasted revenue and net profit values, the function "FORECAST.EST()" was used in Microsoft Excel. The inputs were the historical values, the timeline corresponding to those values (1997-2022), the target date (2032), and seasonality, which was set to 12. Excel uses the method of linear regression, which bases the future values of the historical trends. A forecast for the next 10 years is provided, as a more in-depth analysis is required to accurately predict the financials across the entire lifetime of the company.

Financial Forecasts

Year	Revenue ($millions)			Net Profit ($millions)
	Forecast	Lower-bound value	Upper-bound value	Forecast	Lower-bound value	Upper-bound value
2023	316,184	129,953	502,415	10651.307	-4995.60	26298.21
2024	329,583	141,856	517,310	10001.486	-5771.10	25774.07
2025	343,325	154,090	532,559	10335.191	-5564.04	26234.43
2026	405,810	215,056	596,563	13082.175	-2944.67	29109.02
2027	410,113	217,829	602,396	12965.08	-3190.33	29120.49
2028	419,340	225,515	613,165	14423.065	-1861.86	30707.99
2029	438,952	243,575	634,330	14562.07	-1853.31	30977.45
2030	465,707	268,765	662,648	18514.424	1967.66	35061.19
2031	489,988	291,472	688,504	19926.654	3247.58	36605.73
2032	458,247	258,146	658,349	16926.32	114.02	33738.62

Appendix

Financial Statements

Balance sheet

Year end date	31/12/2022	31/12/2021	31/12/2020	31/12/2019	31/12/2018
Current Assets
Cash and Cash Equivalents ($million)	$53,888	$36,220	$42,122	$36,092	$31,750
Marketable securities ($million)	$16,138	$59,829	$42,274	$18,929	$9,500
Inventory ($million)	$34,405	$32,640	$23,795	$20,497	$17,174
Net Receivables ($million)	$42,360	$32,891	$24,542	$20,816	$16,677
Total Current Assets ($million)	$146,791	$161,580	$132,733	$96,334	$75,101
Long-Term Assets
Net Property and equipment ($million)	$186,715	$160,281	$113,114	$72,705	$61,797
Operating leases ($million)	$66,123	$56,082	$37,553	$25,141	--
Goodwill ($million)	$20,288	$15,371	$15,017	$14,754	$14,548
Other Assets ($million)	$42,758	$27,235	$22,778	$16,314	$11,202
Total Assets ($million)	$462,675	$420,549	$321,195	$225,248	$162,648
Current Liabilities
Accounts Payable ($million)	$79,600	$78,664	$72,529	$47,183	$38,192
Accrued expenses and other ($million)	$62,566	$51,775	$44,138	$32,439	$23,663
Unearned revenue ($million)	$13,227	$11,827	$9,708	$8,190	$6,536
Total Current Liabilities ($million)	$155,393	$142,266	$126,385	$87,812	$68,391
Long-Term lease liabilities ($million)	$72,968	$67,651	$52,573	$39,791	$9,650
Long-Term Debt ($million)	$67,150	$48,744	$31,816	$23,414	$23,495
Other Liabilities ($million)	$21,121	$23,643	$17,017	$12,171	$17,563
Total Liabilities ($million)	$316,632	$282,304	$227,791	$163,188	$119,099
Stock Holders Equity
Common Stocks ($million)	$108	$106	$5	$5	$5
Capital Surplus ($million)	$75,066	$55,437	$42,865	$33,658	$26,791
Retained Earnings	$83,193	$85,915	$52,551	$31,220	$19,625
Treasury Stock ($million)	-$7,837	-$1,837	-$1,837	-$1,837	-$1,837
Other Equity ($million)	-$4,487	-$1,376	-$180	-$986	-$1,035
Total Equity ($million)	$146,043	$138,245	$93,404	$62,060	$43,549
Total Liabilities & Equity ($million)	$462,675	$420,549	$321,195	$225,248	$162,648

Cash flow

Year end date	31/12/2022	31/12/2021	31/12/2020	31/12/2019	31/12/2018
Net Income ($million)	-$2,722	$33,364	$21,331	$11,588	$10,073
Cash Flows-Operating Activities
Depreciation ($million)	$41,921	$34,433	$25,180	$21,789	$15,341
Net Income Adjustments ($million)	$28,439	-$1,859	$6,072	$7,575	$6,352
Changes in Operating Activities
Changes in Inventories ($million)	-$2,592	-$9,487	-$2,849	-$3,278	-$1,314
Accounts Receivable ($million)	-$21,897	-$18,163	-$8,169	-$7,681	-$4,615
Accounts Payable ($million)	$2,945	$3,602	$17,480	$8,193	$3,263
Other Operating Activities ($million)	$658	$4,437	$7,019	$328	$1,623
Net Cash Flow-Operating ($million)	$46,752	$46,327	$66,064	$38,514	$30,723
Cash Flows-Investing Activities
Capital Expenditures ($million)	-$58,321	-$55,396	-$35,044	-$12,689	-$11,323
Investments ($million)	-$2,565	-$60,157	-$72,479	-$31,812	-$7,100
Other Investing Activities ($million)	$23,285	$57,399	$47,912	$20,220	$6,054
Net Cash Flows-Investing ($million)	-$37,601	-$58,154	-$59,611	-$24,281	-$12,369
Cash Flows-Financing Activities
Proceeds from short-term debt ($million)	$41,553	$7,956	$6,796	$1,402	$886
Repayments of short-term debt ($million)	-$37,554	-$7,753	-$6,177	-$1,518	-$813
Proceeds from long-term debt ($million)	$21,166	$19,003	$10,525	$871	$182
Repayments of long-term debt ($million)	-$1,258	-$1,590	-$1,553	-$1,166	-$155
Other financing activities ($million)	-$8,189	-$11,325	-$10,695	-$9,655	-$7,786
Net Cash Flows-Financing ($million)	$9,718	$6,291	-$1,104	-$10,066	-$7,686
Effect of Exchange Rate ($million)	-$351	$70	$618	-$364	-$1,093
Net Cash Flow ($million)	$17,776	-$5,900	$5,967	$4,237	$10,317

Income statement

Year end date	31/12/2022	31/12/2021	31/12/2020	31/12/2019	31/12/2018
Total Revenue ($million)	$513,983	$469,822	$386,064	$280,522	$232,887
Cost of Revenue ($million)	$288,831	$272,344	$233,307	$165,536	$139,156
Gross Profit ($million)	$225,152	$197,478	$152,757	$114,986	$93,731
Operating Expenses
Fulfillment ($million)	$84,299	$75,111	$58,517	$40,232	$34,027
Technology and content ($million)	$73,213	$56,052	$42,740	$35,931	$28,837
Sales, General and admin. ($million)	$54,129	$41,372	$28,676	$24,081	$18,150
Other Operating Items ($million)	$1,263	$62	-$75	$201	$296
Operating Income	$12,248	$24,879	$22,899	$14,541	$12,421
Interest income and other	-$15817	$15081	$2926	$1035	$257
Earnings Before Interest and Tax	-$3,569	$39,960	$25,825	$15,576	$12,678
Interest Expense	-$2,367	-$1,809	-$1,647	-$1,600	-$1,417
Earnings Before Tax	-$5,936	$38,151	$24,178	$13,976	$11,261
Net Income Tax	$3,214	-$4,787	-$2,847	-$2,388	-$1,188
Net Income	-$2,722	$33,364	$21,331	$11,588	$10,073
Net Income Applicable to Common Shareholders	-$2,722	$33,364	$21,331	$11,588	$10,073

Financial ratios

Year end date	31/12/2022	31/12/2021	31/12/2020	31/12/2019	31/12/2018
Liquidity Ratios
Current Ratio	94%	114%	105%	110%	110%
Quick Ratio	72%	91%	86%	86%	85%
Cash Ratio	35%	25%	33%	41%	46%
Profitability Ratios
Gross Margin	44%	42%	40%	41%	40%
Operating Margin	2%	5%	6%	5%	5%
Pre-Tax Margin	-1%	8%	6%	5%	5%
Profit Margin	-1%	7%	6%	4%	4%
Pre-Tax ROE	-4%	28%	26%	23%	26%
After Tax ROE	-2%	24%	23%	19%	23%

Risks related to growing business

1. Intense Competition

Amazon has competitors across geographies and industries- retail (physical, e-commerce, omni-channel), computing services (both web and infrastructure), electronic devices, digital content, grocery etc.

2. Expansion into newer market segments

There could be a possibility of failure to recoup investments in new technologies, products, or services. This is because of the limited or no experience in these areas.  

Risks related to operations

1. International Expansion

There are several factors like government restrictions/ regulations, physical and technological infrastructure, income levels, geopolitical events etc. which pose a threat to significant revenues and profits from the international market. Amazon has no first-to-market advantage in some geographies and little operating experience in others. For example, regulations in the two biggest Asian markets- India and China are quite restrictive to Amazon’s business activities. Violation of these regulations may result in heavy penalties or revocation of licences. They also face threats from more established local companies and brands.

2. Fluctuation in Demand

Variability in Amazon’s retail business because of seasonality, promotions, unforeseen economic, climate and geopolitical events place increased strain on operations. The risks related to fulfilment network optimisation and inventory are magnified during periods of high demand. This results in high fluctuations in operating results and growth rate.

3. Technological Risks (data loss, security breaches, system interruption, lack of redundancy)

Because a lot of sensitive and confidential information is collected, processed, stored and transmitted by Amazon, failure to prevent data loss, theft, and misuse could lead to litigation liability, and regulatory action, discouraging its customers and vendors to use the platform, and could harm the business reputation.  

Furthermore, any event that could prevent Amazon from accepting and fulfilling customer orders and providing services, due to system interruption, delays etc. Can make its product and service offerings less attractive and subject to liability.

4. Strategic Alliances, Commercial Agreements, Supplier and other Business Relationships

Violations by suppliers or other vendors of applicable laws, regulations, contractual terms, intellectual property rights of others, or Supply Chain Standards, as well as products or practices regarded as unethical, unsafe, or hazardous, could expose Amazon to claims, damage their reputation, limit our growth, and negatively affect our operating results. A point to be noted is that there are limited or single sources of supply in some cases.

Additionally, these arrangements are complex and require substantial infrastructure capacity, personnel, and other resource commitments, which may limit the amount of business Amazon can service. They may not be able to implement, maintain, and develop the components of these commercial relationships, which creates additional risk.