Amazon, a company at Risk
We are all quite familiar with Amazon, the multinational technology company that makes our dream products more accessible to us. A project that began on a summers day in 1995, in the garage of Jeff Bezos soon became the world's biggest internet commerce marketplace and part of the Big Four technology companies (next to Apple, Facebook and Google). In the first stage it was designed to be an online marketplace for books but it ended up encompassing much more than that.
Today, Amazon sells almost anything, including jewelry, software, electronics and the list goes on and on. Also, their services branched out significantly into areas such as: AI assistance; cloud services through Amazon Web Services; publishing through Amazon Publishing; distributing and streaming video, music and audio-book content; film and television through Amazon Studios; production of electronics (tablets, Kindle, TVs).
The truth is that Amazon has been surrounded by growing criticism as it evolved. As you will see below, the nature of the backlash mainly revolves around ethics (although in many forms). Nevertheless, at first look the financial stats of the company are not so bad at all. The net income for the quarter ending June 30, 2019 was at a 48.59% yearly increase of $6.186B. Looking at the net income for the twelve month period ending at the same date as previously, a 168.63% increase can be observed, at $26.866B. Turning to their revenue, there is a 19.89% yearly increase observed for the quarter of this year, at $63.404B; while for the twelve month period the reported sum was $252.063B, showing a 21.11% yearly increase. But are things really going this great? Let’s take a closer look at the numbers coupled with some past, present and possible future threats.
P.S. You can monitor the financial situation of Amazon in real time here: https://www.marketwatch.com/investing/stock/amzn/financials
Losses in Core Retail
Diving deeper into the stats, a worring sign can be observed, there are considerable losses in Amazon’s core retail service. Although the company does not seperate its segments into reports, Thomas H. Kee Jr.4in his analysys goes beyond the 3.7% profit margin and looks at Amazon Web Services, Prime and the retail sector seperately. By taking AWS out of the equation, what is left is $500 million in earnings and $45.6 billion in revenue. This might seem like a lot, but there is then only 1% profit left to be shared between retail and Prime. Moving on to Prime, the estimated numbers are around $2.5 billion per quarter and $10 billion per year in sales. Based on these estimates, the $2 billion loss reported by Amazon for the last quarter mostly stems from retail. Now Thomas H. Kee Jr. draws attention to the fact that more than half of Amazon’s revenue is from retail, which means that a considerable part of the business is bleeding money.
Losses oversees
Although, based on the net earnings (see above) it has been another great year for Amazon, but things are not looking that great oversees. While Jeff Bezos keeps succesfully exploring new retail venues like groceries and technologies, the sore point continues to be the online international retail service. Sales in this department are crippled by local competitors (Rakuten in Japan, FlipKart in India, Alibaba in China, MercadoLibre in Latin America). Even with a 34% growth in international sales, this is exceeded by a loss equalling $622 million. In other words, more money is spent than earned. Strategy wise, Jeff Bezos seems more focused on expanding oversees than making a profit. The losses from the international retail area seem to be growing year by year, for example the losses from 2019 represent a sixfold increase from 2016. So it is only natural to be suspicious and wary of this situation. Is this all going somewhere? Will Amazon eventually succeed in turning to profit from oversees sales? So far the company is situated well enough to be patient for a while longer, after all it is everyone’s favorite example of a company that loses money in order to make money.
Brexit Risk
In 2018, Amazon had a $14.5 billion revenue stemming from the UK, which adds up to a total of 22% of its international revenue. Therefore, it is quite a considerable segment of its international retail service branch. But this might all plummet due to Brexit. Since the incident began, there have been troublesome years for UK, both economic uncertaintity and societal division still linger in the air. What is more, the Prime Minister was unsuccessful in securing a deal to both parties satisfaction (EU and the House of Commons).
A no deal Brexit puts further pressure on businesses and politics, increasing the economic downfall of Britain. Ecommerce is no exception from this. And as the giant of ecommerce, Amazon will also have to suffer the consequences. In one scenario, the movement of goods and services will be limited or even come to a complete stand still on the English Channel. However, this could be solved by creating more centres across Europe, although this will significantly increase shipping time.
Another scenario involves the British workforce. Amazon was supposedly keen on opening two warehouses in the UK, which meant putting 2,500 jobs on the market. The complications in this department arise around the topic of immigration, as Amazon mostly relies on an immigrant workforce. Even if in the present, those who are living and or working in the UK have nothing to fear, the process to get there could become rather complicated in the near future. All in all, Brexit can put a quick stop to Amazon’s expansion plans.
Presidential Risk
Big players like Amazon are continually targeted in political campaigns, and with the current turmoil, the future is certainly not secured. This front has been considerably fueled by Donald Trump, who tweeted about the company being a no-tax monopoly” and labeled the company (alongside Google and Facebook) as antitrust.
While some experts claim that the regulatory threat posed by Amazon was exaggerated; others disagree. Some see it aș justified for Amazon to resist certain regulations due to the its small share of retail sales. But considerig the size and influence of the company, oversight can make things more transparent and hopefully keep order. Also, some see monopolistic tendencies in Amazon, which have not fully blossomed yet, maybe they never will, but it is best to keep these at bay.
Furthermore, the upcoming presidential election could be a gamechanger for Amazon. President Trump is certainly not the only politician to have a fewd with the company. On the side of the Democrats, Sen. Bernie Sanders is known for targeting Amazon wages and working conditions, amongst other things.
Working conditions
Probably the most constant problem faced by Amazon throughout its existence has been offering improper working conditions. Going back as far as 2011 it has been reported that people are exposed to an inhumane working environment, being forced to work in temperatures of 38 °C, which led to the deteriorating health of several employees. Apparently, the doors of the loading-bay were not allowed to be opened for fresh air in order to prevent potential thefts. The first response on Amazon’s part was to position an ambulance outside of the warehouse to treat all those who might collapse due to the heat. But, eventually air conditioning was installed.
Among several other incidents, there were numerous worker strikes throughout the years. One of the biggest strikes happened in 2018 on Black Friday across many European countries. Warehouse workers decided to protest against the low pay and the tough working conditions they were exposed to. A more recent event took place this year on July 15 on Amazon’s sale event known as “Prime Day”. This time the workers who went on strike were from the US and Germany, but protested against the same main conditions as before.
The tension continues, as both US and European employees are continuing to protest on Prime Day against unfair treatment by Amazon. It is worth mentioning that the company did considerably increase hourly wages, which now range between $16 and $20, double the mandatory minimum salary. However, this comes with added pressure to live up to unrealistically high standards. Beyond the direct financial losses caused by these strikes, there is another, potentially even greater threat to Amazon: a decrease in investors. People may grow weary of investing for fear of FTC investigations and regulatory sanctions taken against Amazon.
In conclusion, it is fairly obvious that Amazon has not had a smooth run. Nevertheless, it is just as clear that it can roll with the punches. The question remains, for how long? Such a large multibillion dollar company can easily find and invest resources to adapt and evolve. Experts do not see an impeeding end for this giant just about yet. All the more reason to keep an eye on it and for us all to ask ourselves, to what extent are we willing to be part of what the company stands for.
Today, Amazon sells almost anything, including jewelry, software, electronics and the list goes on and on. Also, their services branched out significantly into areas such as: AI assistance; cloud services through Amazon Web Services; publishing through Amazon Publishing; distributing and streaming video, music and audio-book content; film and television through Amazon Studios; production of electronics (tablets, Kindle, TVs).
The truth is that Amazon has been surrounded by growing criticism as it evolved. As you will see below, the nature of the backlash mainly revolves around ethics (although in many forms). Nevertheless, at first look the financial stats of the company are not so bad at all. The net income for the quarter ending June 30, 2019 was at a 48.59% yearly increase of $6.186B. Looking at the net income for the twelve month period ending at the same date as previously, a 168.63% increase can be observed, at $26.866B. Turning to their revenue, there is a 19.89% yearly increase observed for the quarter of this year, at $63.404B; while for the twelve month period the reported sum was $252.063B, showing a 21.11% yearly increase. But are things really going this great? Let’s take a closer look at the numbers coupled with some past, present and possible future threats.
P.S. You can monitor the financial situation of Amazon in real time here: https://www.marketwatch.com/investing/stock/amzn/financials
Losses in Core Retail
Diving deeper into the stats, a worring sign can be observed, there are considerable losses in Amazon’s core retail service. Although the company does not seperate its segments into reports, Thomas H. Kee Jr.4in his analysys goes beyond the 3.7% profit margin and looks at Amazon Web Services, Prime and the retail sector seperately. By taking AWS out of the equation, what is left is $500 million in earnings and $45.6 billion in revenue. This might seem like a lot, but there is then only 1% profit left to be shared between retail and Prime. Moving on to Prime, the estimated numbers are around $2.5 billion per quarter and $10 billion per year in sales. Based on these estimates, the $2 billion loss reported by Amazon for the last quarter mostly stems from retail. Now Thomas H. Kee Jr. draws attention to the fact that more than half of Amazon’s revenue is from retail, which means that a considerable part of the business is bleeding money.
Losses oversees
Although, based on the net earnings (see above) it has been another great year for Amazon, but things are not looking that great oversees. While Jeff Bezos keeps succesfully exploring new retail venues like groceries and technologies, the sore point continues to be the online international retail service. Sales in this department are crippled by local competitors (Rakuten in Japan, FlipKart in India, Alibaba in China, MercadoLibre in Latin America). Even with a 34% growth in international sales, this is exceeded by a loss equalling $622 million. In other words, more money is spent than earned. Strategy wise, Jeff Bezos seems more focused on expanding oversees than making a profit. The losses from the international retail area seem to be growing year by year, for example the losses from 2019 represent a sixfold increase from 2016. So it is only natural to be suspicious and wary of this situation. Is this all going somewhere? Will Amazon eventually succeed in turning to profit from oversees sales? So far the company is situated well enough to be patient for a while longer, after all it is everyone’s favorite example of a company that loses money in order to make money.
Brexit Risk
In 2018, Amazon had a $14.5 billion revenue stemming from the UK, which adds up to a total of 22% of its international revenue. Therefore, it is quite a considerable segment of its international retail service branch. But this might all plummet due to Brexit. Since the incident began, there have been troublesome years for UK, both economic uncertaintity and societal division still linger in the air. What is more, the Prime Minister was unsuccessful in securing a deal to both parties satisfaction (EU and the House of Commons).
A no deal Brexit puts further pressure on businesses and politics, increasing the economic downfall of Britain. Ecommerce is no exception from this. And as the giant of ecommerce, Amazon will also have to suffer the consequences. In one scenario, the movement of goods and services will be limited or even come to a complete stand still on the English Channel. However, this could be solved by creating more centres across Europe, although this will significantly increase shipping time.
Another scenario involves the British workforce. Amazon was supposedly keen on opening two warehouses in the UK, which meant putting 2,500 jobs on the market. The complications in this department arise around the topic of immigration, as Amazon mostly relies on an immigrant workforce. Even if in the present, those who are living and or working in the UK have nothing to fear, the process to get there could become rather complicated in the near future. All in all, Brexit can put a quick stop to Amazon’s expansion plans.
Presidential Risk
Big players like Amazon are continually targeted in political campaigns, and with the current turmoil, the future is certainly not secured. This front has been considerably fueled by Donald Trump, who tweeted about the company being a no-tax monopoly” and labeled the company (alongside Google and Facebook) as antitrust.
While some experts claim that the regulatory threat posed by Amazon was exaggerated; others disagree. Some see it aș justified for Amazon to resist certain regulations due to the its small share of retail sales. But considerig the size and influence of the company, oversight can make things more transparent and hopefully keep order. Also, some see monopolistic tendencies in Amazon, which have not fully blossomed yet, maybe they never will, but it is best to keep these at bay.
Furthermore, the upcoming presidential election could be a gamechanger for Amazon. President Trump is certainly not the only politician to have a fewd with the company. On the side of the Democrats, Sen. Bernie Sanders is known for targeting Amazon wages and working conditions, amongst other things.
Working conditions
Probably the most constant problem faced by Amazon throughout its existence has been offering improper working conditions. Going back as far as 2011 it has been reported that people are exposed to an inhumane working environment, being forced to work in temperatures of 38 °C, which led to the deteriorating health of several employees. Apparently, the doors of the loading-bay were not allowed to be opened for fresh air in order to prevent potential thefts. The first response on Amazon’s part was to position an ambulance outside of the warehouse to treat all those who might collapse due to the heat. But, eventually air conditioning was installed.
Among several other incidents, there were numerous worker strikes throughout the years. One of the biggest strikes happened in 2018 on Black Friday across many European countries. Warehouse workers decided to protest against the low pay and the tough working conditions they were exposed to. A more recent event took place this year on July 15 on Amazon’s sale event known as “Prime Day”. This time the workers who went on strike were from the US and Germany, but protested against the same main conditions as before.
The tension continues, as both US and European employees are continuing to protest on Prime Day against unfair treatment by Amazon. It is worth mentioning that the company did considerably increase hourly wages, which now range between $16 and $20, double the mandatory minimum salary. However, this comes with added pressure to live up to unrealistically high standards. Beyond the direct financial losses caused by these strikes, there is another, potentially even greater threat to Amazon: a decrease in investors. People may grow weary of investing for fear of FTC investigations and regulatory sanctions taken against Amazon.
In conclusion, it is fairly obvious that Amazon has not had a smooth run. Nevertheless, it is just as clear that it can roll with the punches. The question remains, for how long? Such a large multibillion dollar company can easily find and invest resources to adapt and evolve. Experts do not see an impeeding end for this giant just about yet. All the more reason to keep an eye on it and for us all to ask ourselves, to what extent are we willing to be part of what the company stands for.
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A student of life and probably for life. She likes putting theory into practice and to challenge norms. Currently on a mission to understand human behavior and interaction. Always on the lookout for the next challenge.