Download Amazon.com

Presented by:
Amy Kakuk,
Jessica Bourgoin,
and Beth Theriault
April 14, 2005
Outline
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History
Where we Stand Today
Vision Statement
Mission Statements
– Actual
– Proposed
Business Segments
External Audit
– Opportunities
– Threats
EFE
CPM
Internal Audit
– Strengths
– Weaknesses
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IFE
Matrix Analysis
– SWOT Matrix
– Space Matrix
– Grand Strategy Matrix
– BCG Matrix
– IE Matrix
Matrix and SWOT Summary
Financial Ratios
QSPM
Strategy Recommendations
EPS/EBIT Analysis
Future Goals/Objectives
Amazon. COM in the News
•Amazon was incorporated in the state of Washington on July 5, 1994.
•Before the company was renamed Amazon it was called Cadabra, Inc.
•The company was developed by Jeff Bezos and two associates in a garage
converted into a shop.
•The company began selling to the public in July 1995.
•On May 15, 1997 the company went public with an opening price of $18 per
share.
•In 1999, the company bought 46% of drugstore.com and launched it’s own
auction site to challenge e-bay.
•In 2002, Virgin Entertainment Group and Amazon.com relaunched
www.virginmega.com as a co-branded Web site.
•Also in 2002, Amazon.com launched Amazon.ca, bringing Canadians the
selection, convenience, and the value of the Amazon shopping experience.
A little about us…
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

Headquarters is located in Seattle,
Washington.
Amazon’s common stock is publicly traded
on the NASDAQ under AMZN.
Our web-site address is amazon.com
Where we stand today..
Amazon.com, Inc. is an internet-based company that offers
books, music, videos, DVDs, electronics, software, toys, video
games, electronic greeting cards, home improvements, online
auctions, and a virtual mall called z-shops. Amazon has sites in
France, Japan, Germany and the United Kingdom. Domestically,
Amazon has experienced tremendous growth since its inception.
However, that growth has not come without a cost. As the world
economy worsens, Amazon faces pressure from stockholders as
well as the entire financial community to realize a profit. Amazon
has created a platform and customer base that many companies
envy, but can they stay in business long enough to reach
profitability.
Price and Volume
Recent Price
Trade Date
$34.60
04/11/05
52-Week High
$54.70
52-Week Low
$32.82
Beta (5-Year)
2.37
Information from Amazon.com
Stock Chart
Chart from Amazon.com
(May 2003 – March 2005)
Vision Statement (proposed)
To be the largest mass online
merchandiser on earth.
Mission Statement
Actual
The company motto: “Work Hard, Have Fun,
and Make History.”
The company’s six core values: customer
obsession, ownership, bias for action,
frugality, high hiring bar, and innovation.
Mission Statement Proposed
1.
2.
3.
4.
5.
6.
7.
8.
9.
Our first responsibility is to service our worldwide (1)
online customers. (2) We pledge to make every effort
to improve the level of customer service throughout
the e-commerce industry by using up-to-date
hardware and software (3) and by listening to our
customers. We will offer customers increased product
Market
selections (4) to fulfill their online shopping desires.
Customer
We strive to be the most used e-commerce portal on
Technology
the World Wide Web (6), while conducting operations
Product or services
in a highly ethical (5) manner to ensure the long-term
Philosophy
profitability and growth for shareholders.(7) We
Self Concept
Concern for survival, pledge to contribute to the economic strength of
society and to function as an exceptional corporate
growth, and
citizen in all countries that we do business. (8) We
profitability
Concern for public vow to recruit, develop, motivate, reward and retain
image
personnel of exceptional ability, character, and
Concern for
dedication. In return, we will provide them good
employees
working conditions, superior leadership, short and
long term compensation, and an opportunity for
individual growth and employment security.(9)
Business Segments
•The North America segment consists of amounts earned from retail sales
through www.amazon.com and www.amazon.ca, Syndicated Stores and
mail-order catalogs, Merchant.com, marketing, and promotional
agreements. This segment has seen a growth in net sales from $2.382
billion in 2000 to $2.74 billion in 2002
•The International Segment consists of amounts earned from retail sales
through www.amazon.co.uk, www.amazon.de, www.amazon.fr, and
www.amazon.co.jp, Syndicated Stores, and international focused
marketing and promotional agreements. This segment has seen a growth
in net sales from $381million in 2000 to $1.17billion in 2002
External Audit
•
•
•
•
•
•
•
•
•
•
Opportunities
1. Pressure to permanently ban the Internet Tax
2. State of the economy is improving
3. Customer spending increased
4. Currency fluctuation (weak dollar)
5. Increased number of Internet users in the US
6. Broadband access technology
7. Increased number of Internet users worldwide
Threats
8. Online sales predicted to increase
•
1. Taxes imposed for EU customers
9. Low interest rate
•
2. Unemployment level highest sine 1994
10. One European currency - Euro
•
3. Currency fluctuation
•
4. Failure to permanently ban Internet taxes
•
5. Aggressive competition
•
6. Identity theft
•
7. Terrorist attack, war
•
8. State of the economy, high inflation
•
9. Volatile stock market
•
10. High interest rate
•
11. Ease of entry into market
Key External Factors
Weight
Rating
Weighted Score
1. Pressure to permanently ban the Internet Tax
0.07
2
0.14
2. State of the economy is improving
0.08
3
0.24
3. Customer spending increased
0.05
3
0.15
4. Currency fluctuation (weak dollar)
0.05
3
0.15
5. Increased number of Internet users in the US
0.03
3
0.09
6. Broadband access technology
0.03
4
0.12
7. Increased number of Internet users worldwide
0.03
3
0.09
8. Online sales predicted to increase
0.05
4
0.20
9. Low interest rate
0.03
3
0.09
10. One European currency - Euro
0.03
3
0.09
1. Taxes imposed for EU customers
0.05
3
0.15
2. Unemployment level highest sine 1994
0.04
3
0.12
3. Currency fluctuation
0.04
3
0.12
4. Failure to permanently ban Internet taxes
0.06
2
0.12
5. Aggressive competition
0.07
4
0.28
6. Identity theft
0.05
4
0.20
7. Terrorist attack, war
0.02
2
0.04
8. State of the economy, high inflation
0.07
2
0.14
9. Volatile stock market
0.04
2
0.08
10. High interest rate
0.04
2
0.08
11. Ease of entry into market
0.01
2
0.02
Total
1.00
Opportunities
Threats
2.84
Competitive Profile Matrix
Amazon. COM
Critical Success
Factors
Barnes & Nobles
eBay
Weight
Rating
Weighted
Score
Rating
Weighted
Score
Rating
Weighted
Score
Market Share
Price
Financial Position
Product Quality
Consumer Loyalty
Global expansion
Advertising
Software technology
Management
e-commerce expertise
0.05
0.10
0.15
0.10
0.10
0.15
0.15
0.05
0.10
0.05
4
4
2
3
4
4
4
4
4
4
0.20
0.40
0.30
0.30
0.40
0.60
0.60
0.20
0.40
0.20
3
3
4
3
3
3
3
3
4
3
0.15
0.30
0.60
0.30
0.30
0.45
0.45
0.15
0.40
0.15
4
4
3
3
4
4
4
3
4
4
0.20
0.40
0.45
0.30
0.40
0.60
0.60
0.15
0.40
0.20
Total
1.00
3.60
3.25
3.70
Weaknesses
Strengths
1. Accumulated deficit of $3 billion
1. Strong management team
2. Operating losses
2. Strong customer service support
3. Interest payments on debt issued
3. Up-to-date technology and software
4. High inventory risk - seasonality
4. High brand name recognition
5. Small number of vendors (suppliers)
5. Corporate culture
6. Breach of customer confidential
information
6. Distribution centers
7. Strategic alliances
8. Increased revenue from international
segment
9. High inventory turnover
IFE
Key Internal Factors
Weight
Rating
Weighted
Score
1. Strong management team
0.10
4
0.40
2. Strong customer service support
0.07
4
0.28
3. Up-to-date technology and software
0.08
4
0.32
4. High brand name recognition
0.10
4
0.40
5. Corporate culture
0.07
3
0.21
6. Distribution centers
0.05
3
0.15
7. Strategic alliances
0.07
3
0.21
8. Increased revenue from international segment
0.03
3
0.09
9. High inventory turnover
0.03
3
0.09
1. Accumulated deficit of $3 billion
0.10
1
0.10
2. Operating losses
0.05
1
0.05
3. Interest payments on debt issued
0.05
2
0.10
4. High inventory risk - seasonality
0.05
2
0.10
5. Small number of vendors (suppliers)
0.05
2
0.10
6. Breach of customer confidential information
0.10
2
0.20
TOTAL
1.00
Strengths
Weaknesses
2.80
SWOT Matrix
S-O Strategies
Market penetration – increase
marketing expenditures to 5% of
net sales (O3, O5, O9, S4, S2,
S9)Lobby to permanently ban
Internet Tax (O1, O7, S1, S4)
W-O Strategies
Concentric Diversification – add
new services/products to level
seasonality- food & beverage
(O1, O2, O5, O9, W4, W5)
S-T Strategies
Lobby to permanently ban Internet
Tax ( T4, S1)Horizontal
Diversification – create a Web
search engine (T5, T11, S1, S2,
S4).
W-T Strategies
Lower prices (T4, T5, T11, W4)
FS
Aggressive
Conservative
CA
IS
Defensive
ES
Competitive
Space Matrix
Quadrant II
Rapid
Market
Growth
Quadrant I
Grand Strategy Matrix
Weak
Competitive
Position
1.
Market Development
2.
Market Penetration
3.
Product Development
4.
Forward/Backward/Horizontal Integration
5.
Concentric Diversification
Strong
Competitive
Position
Quadrant IV
Slow
Market
Growth
BCG Matrix
Relative Market Share Position
High 1.0
High
+20
Industry
Sales
Growth
Rate
Medium .50
Stars
Domestic
Low 0.0
Question Marks
International
Med
0
Cash Cows
Low
-20
Dogs
Internal-External (IE) Matrix
The IFE Total Weighted Score
Strong
Weak
3.0 to 4.0
2.0 to 2.99
1.0 to 1.99
High
I
II
III
3.0 to
3.99
International
Medium
The EFE
Total
Weighted
Score
Average
Domestic
IV
V
VI
VII
VIII
IX
2.0 to
2.99
Low
1.0 to
1.99
Hold and
Maintain
Matrix Analysis and SWOT Summary
Alternative Strategies
IE
SPACE
GRAND
COUNT
Forward Integration
*
*
*
3
Backward Integration
*
*
*
3
Horizontal Integration
*
*
*
3
Market Penetration
*
*
*
3
Market Development
*
*
*
3
Product Development
*
*
*
3
Concentric Diversification
*
*
2
Conglomerate Diversification
*
1
Horizontal Diversification
*
1
Joint Venture
*
1
Retrenchment
Divestiture
Liquidation
Financial Ratio Analysis (March 2004)
Company
Industry
Sector
S&P 500
559.59
41.01
28.90
24.01
P/E High - Last 5 Yrs
NA
45.19
48.47
45.41
P/E Low - Last 5 Yrs
NA
15.69
16.09
16.26
Beta
2.23
1.30
0.96
1.00
Price to Sales (TTM)
3.16
5.40
2.80
3.33
Price to Cash Flow (TTM)
145.89
29.19
17.03
17.32
Price to Free Cash Flow (TTM)
48.12
43.57
33.11
28.97
% Owned Institutions
58.35
68.16
50.48
64.19
Valuation Ratios
P/E Ratio (TTM)
Financial Ratio Analysis (cont.)
Amazon
Sector
Industry
S&P 500
Dividend Yield
N/A
1.17
2.14
2.04
Dividend Yield - 5 Yr Avg
0.00
0.22
1.43
1.48
Dividend 5 Yr Growth Rate
NM
7.00
-0.89
6.48
Payout Ratio (TTM)
0.00
2.12
15.54
26.78
Sales (MRQ) vs Qtr 1 Yr Ago
36.20
24.97
14.39
13.40
Sales - 5 Yr Growth Rate
53.89
35.47
17.25
9.30
2357.14
27.30
15.43
28.69
NM
43.79
15.23
12.15
10.16
15.62
2.61
4.06
Dividends
Growth Rates %
EPS (MRQ) vs Qtr 1 Yr Ago
EPS - 5 Yr Growth Rate
Capital Spending - 5 Yr Growth
Rate
Financial Ratio Analysis (cont.)
Financial Strength
Amazon
Sector
Industry
S&P 500
Quick Ratio (MRQ)
1.11
1.22
0.93
1.26
Current Ratio (MRQ)
1.45
2.19
1.47
1.76
LT Debt to Equity (MRQ)
N/A
0.66
0.74
0.68
Total Debt to Equity (MRQ)
N/A
0.73
0.82
0.85
Interest Coverage (TTM)
2.08
16.81
7.84
11.86
Gross Margin (TTM)
23.88
42.23
42.84
47.32
Gross Margin - 5 Yr Avg
23.23
41.08
42.06
47.01
EBITD Margin (TTM)
5.19
13.65
22.32
20.79
Profitability Ratios %
Financial Ratio Analysis (cont.)
Amazon
Industry
Sector
S&P 500
-14.93
6.75
11.21
18.35
0.68
11.64
10.37
17.27
-19.84
7.27
11.77
17.54
0.68
7.76
7.54
13.12
-19.84
3.74
7.62
11.59
1.94
8.29
5.91
6.40
Return on Assets - 5 Yr Avg
-24.73
4.45
5.49
6.79
Return on Investment (TTM)
3.89
11.53
7.98
9.97
-40.89
5.83
7.59
10.93
Return on Equity (TTM)
N/A
14.04
13.51
18.71
Return on Equity - 5 Yr Avg
N/A
13.84
13.18
19.22
Operating Margin - 5 Yr Avg
Pre-Tax Margin (TTM)
Pre-Tax Margin - 5 Yr Avg
Net Profit Margin (TTM)
Net Profit Margin - 5 Yr Avg
Management Effectiveness %
Return on Assets (TTM)
Return on Investment - 5 Yr Avg
Financial Ratio Analysis (cont.)
Efficiency
Amazon
Sector
Industry
S&P 500
Revenue/Employee (TTM)
674,833
393,351
479,338
622,866
4,579
29,688
90,606
81,707
N/A
26.71
17.23
9.76
Inventory Turnover (TTM)
18.39
6.48
17.53
10.46
Asset Turnover (TTM
2.86
1.91
1.17
0.92
Net Income/Employee (TTM)
Receivable Turnover (TTM)
Financial Information



Amazon.com had an increase in revenue of
2141.3 million from 2001 to 2003
In 2001 and 2003, Amazon.com’s net income
was in the negative, but in 2003 they had a
positive net income of $35.3 million
They have experienced a decrease in their
total debt from 2001 to 2003 of $221.4 million
Create a
web
Search
engine
Key External Factors
Weight
Opportunities
Start
Gourmet
food
wholesaler
AS
TAS
AS
TAS
1. Pressure to permanently ban the Internet Tax
0.07
1
0.07
1
0.07
2. State of the economy is improving
0.08
1
0.08
3
0.24
3. Customer spending increased
0.05
1
0.05
3
0.15
5. Increased number of Internet users in the US
0.03
3
0.09
4
0.12
6. Broadband access technology
0.03
4
0.12
3
0.09
8. Increased number of Internet users worldwide
0.03
3
0.09
4
0.12
9. Online sales predicted to increase
0.05
1
0.05
3
0.15
10. Low interest rate
0.03
1
0.03
2
0.06
2. Unemployment level highest since 1994
0.04
1
0.04
2
0.08
4. Failure to permanently ban Internet taxes
0.06
1
0.06
1
0.06
5. Aggressive competition
0.07
4
0.28
3
0.21
6. Identity theft
0.05
1
0.05
1
0.05
8. State of the economy, high inflation
0.07
1
0.07
2
0.14
11. Ease of entry into market
0.01
3
0.03
4
0.04
Threats
SUBTOTAL
1.11
1.58
Key Internal Factors
Weight
Create a
web search
engine
Start gourmet
food wholesaler
Strengths
AS
TAS
AS
TAS
1. Strong management team
0.10
2
0.20
4
0.40
2. Strong customer service support
0.07
1
0.07
4
0.28
3. Up-to-date technology and software
0.08
3
0.24
4
0.32
4. High brand name recognition
0.10
1
0.10
4
0.40
5. Corporate culture
0.07
1
0.07
3
0.21
1. Accumulated deficit of $3 billion
0.10
1
0.10
2
0.20
2. Operating losses
0.05
2
0.10
1
0.05
SUBTOTAL
1.00
Weaknesses
Total Attractiveness Score
0.88
1.86
1.81
3.26
Strategy Recommendations and
Implementation
Market penetration – increase market share for present products in
present markets through greater marketing efforts.
Increase marketing expenses to 3% of net sales for the next
three years compared to 2% in 2002.

Reasons – aggressive advertising from new competitors
such as buy. COM, overstock. COM.
Target the marketing campaign.

Costs associated with this strategy – increase in fulfillment
costs and marketing costs. Fulfillment costs are 10% of net
sales. For the period 2003 – 2005, these costs amount to
$2,084,000,000. The 1% increase in marketing costs for the
period 2003 -2005 amounts to $208,440,000.
Strategy Recommendations and
Implementation
Concentric diversification – add new but related products/services.

Example – start an online gourmet food and beverage store
using a wholesaler such as Seattle Chocolate Co.

Reasons – take advantage of brand name recognition and
customer loyalty.

Because this strategy does not involve any inventory build-up,
costs associated are relatively low.
Horizontal diversification – add new, unrelated products/services for
present customers.

Example – develop a search engine to control the path to
online merchants.

Risk – similar services are already available: Yahoo, Google.
Amount Needed
Interest
Tax Rate
0%
Share Price
Shares Outstanding
1,000M
5%
EPS/EBIT Analysis
$19
388M
Common Stock Financing
Recession
Normal
Boom
EBIT
500,000,000 1,000,000,000 1,500,000,000
Interest
0
0
0
EBT
500,000,000 1,000,000,000 1,500,000,000
Taxes
0
0
0
EAT
500,000,000 1,000,000,000 1,500,000,000
# Shares 440,631,579 440,631,579 440,631,579
EPS
1.13
2.27
3.40
Recession
500,000,000
50,000,000
450,000,000
0
450,000,000
388,000,000
1.16
Debt Financing
Normal
Boom
1,000,000,000 1,500,000,000
50,000,000
50,000,000
950,000,000 1,450,000,000
0
0
950,000,000 1,450,000,000
388,000,000 388,000,000
2.45
3.74
70 Percent Stock - 30 Percent Debt
Recession
Normal
Boom
EBIT
500,000,000 1,000,000,000 1,500,000,000
Interest 15,000,000
15,000,000
15,000,000
EBT
485,000,000 985,000,000 1,485,000,000
Taxes
0
0
0
EAT
485,000,000 985,000,000 1,485,000,000
# Shares 424,842,105 424,842,105 424,842,105
EPS
1.14
2.32
3.50
70 Percent Debt - 30 Percent Stock
Recession
Normal
Boom
500,000,000 1,000,000,000 1,500,000,000
35,000,000
35,000,000
35,000,000
465,000,000 965,000,000 1,465,000,000
0
0
0
465,000,000 965,000,000 1,465,000,000
403,789,474 403,789,474 403,789,474
1.15
2.39
3.63
Net Worth Analysis
1. Stockholders’ Equity = $(1,355,900,000)
2. Net Income (12/31/2002) * 5 = $149,100,000 * 5 = $(745,500,000)
3. Share price / EPS * Net Income = $19/$(0.39)*$(149,100,000) = $(7,263,846,154)
4. Number of shares outstanding * Share price = 388,000,000*$19 = $7,372,000,000
Goals and Objectives
For the next 3-4 years, Amazon is hoping to have
started their online gourmet food and beverage
store.
Also, Amazon want to increase their marketing
expenses from 2% of net sales to 3%. This will give
them more advertising and brand recognition.
Amazon has recently launched their search engine
called A9. Now they need to spend the next three
year trying to get the name known and get in the
competition with yahoo and google.
2005 Press Releases
Apr.04
Amazon.com Acquires BookSurge LLC
Mar.11
Amazon.com to Webcast Investor Conference Presentation
Feb.15
Amazon.com Announces New Award for Innovative Nonprofit
Organizations
Feb.08
Amazon.com Jewelry Sales Up More Than 120 Percent
Feb.02
Amazon.com Announces Record Free Cash Flow Fueled by Lower
Prices and Free Shipping; Introduces New Express Shipping
Program -- Amazon Prime
Jan.21
Amazon Web Services Gives Software Developers First-Ever Access
to Data and Technology from Amazon.ca and Amazon.fr
Jan.17
Amazon Services and Diane Von Furstenberg Studio Announce ECommerce Alliance for Online Apparel Offering
Press releases form Amazon.com