Instructions

· Select a Company of your choice that you would consider including in your portfolio.

· Conduct a Company Analysis – (use the checklist and format on page 413 of the class
text)

1. Provide an overview of the company (corporate profile), including a basic

understanding of its businesses, investment activities, corporate governance, and
perceived strengths and weaknesses. (10 marks)

2. Explain relevant industry characteristics. (10 marks)

3. Analyze the demand for the company’s products and services. (20 marks)

4. Analyze the supply of products and services, which includes an analysis of costs.
(20 marks)

5. Explain the company’s pricing environment. (10 marks)

6. Present and interpret relevant financial ratios, including comparisons over time
and comparisons with competitors. (30 marks)

100 Marks – 10% towards final grade

Business Overview

About Amazon

On July 16, 1995, Amazon legitimately launched an online bookselling business. The budding
retailer shipped books to 45 different nations as well as all 50 states within America. Jef Bezos chose
the name Amazon for his company because he thought it would prevent him from restricting himself to
a single category of goods or services. After seeing the financial potential of the Internet and
concluding that books may do well online, he relocated to Washington state and incorporated
Amazon in 1994.

Amazon had generated $15.7 million in revenue by the end of 1996, and in 1997, Bezos took the
business public with an IPO that raised $54 million. Amazon had generated $15.7 million in revenue
by the end of 1996, and in 1997 Bezos went public with the company, raising $54 million in the
process. Fast forward to 20 years later, Amazon continues to be ranked#1 within its industry holding a
market value of $250 billion. Amazon carries a wide array of products and services such as household
items, beauty products, printing services, jewelry, car parts, clothing etc., they are ranked as the
worlds’ #1 online department store.

Composition of Sales

Amazon has diversified its composition of sales. They don’t only depend on sales from their retail
online stores they developed multiple avenues to produce and improve sales. Jeff Bezzo’s “Get Big
Quick” attitude has allowed them to develop a model that produces billions in sales via business
segments. The chart below states the composition of sales for June 2019-2020.

Business Segment Sales ( June 2019-2020)

 Online Stores $163B
Amazon E-Commerce Website

Third-Party Selling Services $63 B

Amazon Web Services $40B

Cloud Based Services etc.

Subscription Services $22 B

Amazon Prime, Prime Video & Prime Music

Physical Stores $ 17B

Amazon Whole Food Stores, Amazon Books etc.

Other $ 17B
Sales generated from ads.

Total Revenue $322 Billion

Amazon’s Corporate Culture

Amazon’s culture is a customer-centered company. They believe in putting their customer at the
forefront of their business as they are “at heart at everything they do.” The ‘Amazonians’ as they
fondly refer to themselves believe that the interests of their clients are closely related to the long-term
objectives of shareholders. Once their jobs are performed well, the customers they have today will buy
more tomorrow. Wise spending is also encouraged as they recognize the significance of consistently
promoting a cost-conscious culture.

Employee success is also promoted as over 1.2 billion is spent to provide free training for staff. Wages
are double the minimum wage and extend benefits not only to employees but eligible family members
as well.

Corporate Governance
Responsibility of the Board

The Board of Directors is responsible for the control and direction of the Company. It represents and is
accountable only to shareowners. The Board's primary purpose is to build long-term shareowner value.

Board Composition

The full Board, on the recommendation of the Nominating and Corporate Governance Committee,
nominates candidates for election to the Board.

Code of Business and Ethics

Directors must abide by the relevant provisions of the Company's Code of Business Conduct and
Ethics.

Amazon's Organizational Chart

 Investment Activities

Amazon is an aggressive investor. They believe when there is an investment that will result in market
leadership benefits, it is better to make risky investment selections rather than cautious ones. Some of
these investments will be profitable, while others won't, but in either case, they will have learned a
crucial lesson.

Investing activities for 2022 are as follows:

Purchases of property and equipment

Amazon invested a total of $63,645M in property and equipment in 2022. They heavily invested in
new technologies and the healthcare system with the introduction of Amazon Pharmacy.

Purchases of marketable securities

Amazon typically invests any extra cash in investment-grade short- to intermediate-term fixed-income
securities and money market funds with a AAA rating. They invested a total of $2,565 M in this
security in the year 2022.

Amazon's Strengths

Strong Brand Recognition & Large Customer Base

Consumers are highly familiar with the company and are often the number one choice for customers
worldwide.

Diverse Products & Services

The Company has a diverse range of products and services available. They are considered a one stop
shop for many due to the convenience. Being able to meet the demands of customers is a great
advantage.

Technology

Amazon has heavily invested in their artificial intelligence. This has optimized their operations and
greatly improved customer service.

Amazon Weaknesses
Cyberattacks

Although monies have been invested to upgrade the technological segment within the company they
are still exposed to cyberattacks. For Amazon and its customers, a data breach might result in serious
problems, such as identity theft and financial losses.

Lack of Uniqueness

A vast selection of products, quick shipping, and a comfortable shopping experience are all part of the
formula Amazon has built for online product sales. To compete with Amazon in the market, other
businesses can simply copy this business model. Thus this can create an avenue for multiple
competitors.
 2. Explain relevant industry characteristics.

Amazon is one of the biggest players in the e-commerce market as one of the leading companies

in online retailing with a control on global Operations. They have a strong brand recognition and

reputation. Amazon has established itself as a trusted and reliable brand to its consumers. The

company is known for its various products sold by various sellers and each product posted has a

life cycle. This can be both and long as Amazon carries a variety of products. This helps Amazon

by keeping in demand products and ensuring that they can meet expectations of customers. This

life cycle consists of the Introductory stage, growth, Maturity and Decline stages, which is

similar to any business which is involved in the retail sector.

Amazon has a growing role in the U.S Economy. It is stated on their website that Amazon

has created many jobs in the past decade and also invested more than $530 billion US over the

last decade. Amazon has powerful barriers to entry. A contributing factor to this is the major

brand the company has. To become heavily invested in E-commerce as Amazon would be quite

costly. Barriers to entry would include the difficulty gaining a customer base like Amazon would

have and this is essential to have a successful e-commerce business. Amazon and its competitors

such as Walmart or E-Bay have the advantage of brand name and this is an entry barrier for most

new entrants in the market.

There are 2.5 million retailers in the US. The definition used for an e-commerce business on

Pipecandy Merchantry, is a business that has a website on which commercial transactions can be

executed, i.e., a user can pay online and receive a product/service in return. Based on that

definition, North America has 4.2 million e-commerce businesses and Pure Play e-commerce

businesses or e-tailers are less than 100,000.00 worldwide.

As of June 2022, Amazon accounted for 37.8% of the US E-commerce market which made the

company the leading online retailer in the country. According to an article on Pipecandy

Merchantry, 43.5% of the $870.78B (US eCommerce sales in 2021) came from Amazon alone

which was about $378.95B. (Vittal, B. 2022)

The mission and vision of Amazon shows the company’s customer centered approach to e-

commerce business. Amazon puts the customer experience as one of the most important aspects

of their business. Therefore, the company is always developing and improving upon new

products and services to meet their customers needs. The value of brand recognition is important

in a competitive industry like e-commerce where consumers have other options to choose from

and it also helps differentiate themselves from their competitors.

Amazon can be described as having a diversified business model. The e-commerce business

contributes to over 50% of the company’s revenue while a large portion is gained from

supporting third party businesses to sell on the platform. Factors that contribute to Amazon’s

competitive advantage include its large-scale web presence, Data and analytic capability, their

focus on customer value and the application of technology for business efficiency.

3. Analyze the demand for the company’s products and services.

Amazon largest source of demand lies in personal consumption (household) and other companies

and third-party sellers. Amazon’s has pride itself in customer satisfaction however, the company

differentiates itself by coming up with creative ideas and new products to add to it product line

and services options. To give an example would be the Amazon’s Prime drone delivery service

throughout the United States. (Staff, 2022) Amazon’s consumer demographic centers around the

middle ane upper income and in the second quarter of 2021 when the company’s main

competitors were struggling due to high inflation rates Amazon claim an increase in demand,

giving an optimistic view of the upcoming months. (Palmer, 2022) Amazon seems to have an

exceptional long-term outlook in that there is new ventures to be launched like the Prime Drone

Delivery Service and even its older product Amazon Business which is currently growing

exponentially with over six million customers. (Kellner, 2023)

4. Analyze the supply of products and services, which includes an analysis of costs.

In 2022 Amazon’s holds a 37.8% in the ecommerce market, while its competitors Ebay, Apple,

Walmart ecommerce market share was 3.5%, 3.9% and 6.3% respectively. (Statista, 2022)

Amazon has many substitutes like Thrive Market, Grove Collaborative, Made Trade, Etsy and

Credo to name a few. Each with their own uniqueness ranging from sustainable & organic

products, cruelty free and non-toxic products, and women-led/owned. (Our Editors, 2023)

In 2019 the global ecommerce was valued at USD 9.09 trillion with an expectation of a

compound annual growth rate of 14.7% from 2020-2027. As technological awareness increases

the ecommerce market also grows. (E-commerce Market Share, Growth & Trends Report, 2020-

2027, n.d.) As the ecommerce industry steadily grows one has the ask the question can
production capacity of the manufacturer and the distributor increase to accommodate this

growth. Companies that has chosen to join the ecommerce industry have made drastic changes to

how they operate from the brick and mortar stores. Their focus has change to meet the primary

goal of the ecommerce supply chain which is to make sure the product is of high quality, ensure

that the product is consistently available and that the customer is satisfied each time a purchase is

made. (Rickerby, 2023) The ecommerce industry supply chain consists of six categories

including “supply and demand; warehousing; inventory tracking; order entry; order management;

and distribution, delivery, and returns.” (Rickerby, 2023)

Amazon has adapted within its supply chain the DEX which is delivery experience team.

According to Siwei Jia a DEX team principal research scientist “The DEX team is a bridge that

connects supply and demand” (Zorio, 2022) The team is given the responsibility to “balance the

information coming from Amazon fulfillment centers around the globe (which items are stored

where and in what quantities, plus the relevant logistics) and the information coming from

customers (which items do they want and by when) in a manner that allows those two ends of the

spectrum to interact efficiently.” (Zorio, 2022) This adaptation is just another example of of the

creative and innovative way Amazon comes up with ensuring that its resources is well utilize

within any given time. Amazon’s capacity was further strengthened with its decision to upgrade

its inventory placement strategy and also moving from having national fulfillment centers to

regional warehouses. Furthermore, the company continues to tweak its “advance machine

learning algorithms” to ensure that they have the right inventory within a given period according

to the specific region. (Zorio, 2022)

Amazon's Cost Structure

 Cost Structure: Amazon's cost structure consists of operating its warehouse and distribution

network, marketing, administrative, and technical infrastructure costs. It also includes spending

for research and development. To keep costs down and maintain the capacity to grow their

services and market share, they put a strong emphasis on preserving operational efficiency and

sustainability.

It was stated in Amazon’s Annual Report that their trademarks, copyrights, patent marks and

Intellectual Property are considered critical to their success. The company has registered and

applied for registration of a number of US and international domain names, trademarks and

copyrights. Amazon’s marketplace provides many benefits and exposure for its e-commerce

sellers, which are over 2 million listed. Amazon created a brand registry to allow the company to

identify brand owners. Amazon launched this in May 2017 to help brand owners protect their

registered trademarks.

Amazon’s Dynamic Pricing Environment

Pricing can be defined as setting the value placed on a product or service. If it is set too high the seller

may receive fewer sales. However, if the price is set too low, the seller will miss out on valuable
revenue. Thus, different pricing environments exist to set a price that is affordable to the consumer and

profitable to the seller. The best pricing strategy will boost profits and be in the range of customers

expectations. Amazon utilizes dynamic pricing.

This flexible pricing strategy allows Amazon to set their prices based on the market and customer

demand. Thus, when goods are high in demand a fluctuation in the price may be seen. On the flip slide

dynamic pricing gives Amazon the flexibility to provide discounts and deals. According to Guerrero

“ Amazon may alter product prices by up to 20% when its competitors offer promotions or discounts.

However, it does this gradually to achieve maximum profitability based on the sales forecast. In this

way, it manages to be the cheapest and stays in control of its profit margin.”

Dynamic Pricing has been quite profitable to Amazon, as their changing pricing strategy is well

known. Customers anticipate sales such as Black Friday Sales, Cyber Monday Sales, and

Thanksgiving Sales as they are quite aware of the favorable discounts and deals. Also when customers

subscribe to Amazon Prime Deals they have access to discounts and deals on a regular basis. For this

affordability, consumers are encouraged to visit Amazon to do their shopping.

From the onset of Amazon to its expanding internationally in 2012, Amazon has virtually exclusively

bet on dynamic pricing tactics. Amazon’s online marketplace has continued to rise in the ranks of

cyber goliaths. Utilizing dynamic pricing to attract and retain customers can be one of the reasons to

which Amazon owes it success.

6. Present and interpret relevant financial ratios, including comparisons over time and comparisons
with competitors.

Liquidity Ratio

Current Ratio
In 2020 Amazon’s current ratio stood at 1.05 and in 2021 it increased to 1.14 which suggests that the

company was able to meet its short-term obligations, however, in 2022 the ratio fell to 0.94 which can

be interpret as the company was experiencing a liquidity crisis. In 2021 and 2022 Ebay’s current ratio

stood at 1.97 and 2.18 respectively showing that the company was more that able to meet its financial

obligations. Walmart current ratio for the same period stood at 0.97 and 0.93 which indicates that they

were experiencing liquidity issues in both periods. Ebay had stronger liquidity than Amazon in 2021

and 2022 which creditors highly prefer.

Quick Ratio

Amazon’s quick ratio for 2020-2023 was 0.86, 0.91 and 0.72 respectively. Having a positive quick

ratio indicates that the company was able to convert their assets into cash quickly, in case of

emergencies. Walmart’s for 2021 and 2022 was 0.49 and 0.28 respectively, it was lower that

Amazon’s but not negative.

Profitability Ratio

Gross profit margin

Amazon’s gross profit margin for the period 2020-2022 was 44%, 42% and 40% respectively, which

over the period it did not fluctuate too much. In 2021 and 2022 Ebay’s gross profit margin was at 75%
and 73% and Walmart was 25% for both 2021 and 2022. In ecommerce a good gross profit margin is

50-70%, however the average is 41.54%. While Amazon has just cleared the average Ebay has vastly

exceeded it and surpass the expectations of a “good” gross profit margin for the industry.(What Are

Good Ecommerce Profit Margins?, 2023) This indicate that both companies revenue is able to over its

cost of production. However, Walmart fell way below the industry average and the company may not

be adequately able to cover its production cost with its current revenue.

Net Profit Margin

The net profit margin for Amazon for 2020-2023 was 6%, 7% and -1% respectively. For Ebay in

2021-2022 it was 131% and -13% and Walmart for the same period was 2% for each year. A good net

profit margin is 10% for this industry. (What Are Good Ecommerce Profit Margins?, 2023) Amazon

low net profit margin can indicate that the company is struggling to effectively control the cost

associated with providing its products/services. This can be said for both competitor except for Ebay in

2021 where its net profit margin far exceeded the industry average.

Return on Assets (ROA)

Amazon’s ROA in 2020-2022 was 8%, 8% and -1% respectively. ROAs for ecommerce average about

2.87(Hall & Hector, 2022) which indicates that Amazon has exceeded the average in 2020 and 2021

indicating that the company was generating a profit and its investments. However, in 2022 the ROA

fell to a minus figure which show that the company needs to look carefully at its investment strategies

and management of them. Walmart’s ROA for 2021 and 2022 was 5% and 6% while Ebay’s was 51%

and -6% over the same period.

Solvency Ratio 2020-2022

Debt-to-Equity

In 2020, the company’s Debt to equity Ratio was 2.43, in 2021 it dropped to 2.04 and in 2022
increased to 2.17. This shows that Amazon has an average of $2 of debt to every dollar of equity.
This is higher than 1 which means that Amazon has a high financial risk resulting and a low level
of solvency. EBay, which is one of their competitors in 2021, had a debt-to-equity ratio of 1.72
and 4.42 in 2020. Walmart, their other competitor in 2022 had a debt-to-equity ratio of 1.66 and
in 2021 1.88. Compared to the competitors, Amazon currently has the highest debt-to-equity
ratio value of them all.

Debt-to-Assets

Amazon in 2020 Debt to asset ratio was 0.68, 2021 was 0.67 and 2022 was 0.71. This shows that
the company’s assets are funded more with debt than equity. On average, 67-71% of the
company’s assets are financed with debt. EBay in 2021 had a debt to asset of 0.63 and 0.81 in
2020. While Walmart, in 2022 was 0.62 and in 2021 was 0.65. Similar to Amazon, the assets
these companies own are financed with debt and it’s a close amount to Amazon.

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