Amazon Business Combinations and Financial Analysis Assignment 1: Amazon.com Business Combinations and Financial Results Analysis
Search the Internet for acquisitions and equity investments made by Amazon.com during the last five (5) years. Review the 10-K of Amazon.com located at http://www.sec.gov/cgi-bin/browse-edgar?company=&match=&CIK=AMZN&filenum=&State=&Country=&SIC=&owner=exclude&Find=Find+Companies & action=get company.
Amazon Business Combinations and Financial Analysis Essay Guidelines
Write a three to four (3-4) page paper in which you:
1. Examine how at least three (3) growth strategy alternatives utilized by Amazon.com in the global and domestic retail markets influenced profitability, and indicate if the strategies were successful.
2. Assess the financial value of the acquisitions and investments made by Amazon.com, and the influence of the acquisitions and investments on profitability during the accounting period.
3. Analyze the effect of the equity investments and impairments resulting from the acquisitions and investments by Amazon.com on the financial statements, and indicate whether or not the strategy was a creatable one. Provide support for your rationale.
4. Create an argument that growth in the European market can have a significant impact on current earnings and profit for Amazon.com. Provide support for your rationale.
5. Use at least two (2) quality academic resources in this assignment. Note: Wikipedia and other Websites do not qualify as academic resources.
Amazon Business Combinations and Financial Analysis Assignment Formatting Requirements
Your assignment must follow these formatting requirements:
• Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.
• Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.
The specific course learning outcomes associated with this assignment are:
• Analyze accounting situations to apply the proper accounting rules and make recommendations to ensure compliance with generally accepted accounting principles.
• Use technology and information resources to research issues in accounting.
• Write clearly and concisely about accounting using proper writing mechanics.
SAMPLE ANSWER
Amazon.com Business Combinations and Financial Results Analysis
Several firms often fail to attain their set targets relating to growth and profitability. This is attributable to lack of a strong execution of infrastructure and a clear and precise growth strategy. The probability of success is impaired if either or both of these strategies are lacking. As a result, growth becomes obscure. Amazon.com has, however, attained massive growth due to its effective growth strategies and it is at present ranked as the prevalent online retailer globally (Schepp & Schepp, 2009).
This is notwithstanding the projection that the online retail industry in the United States will grow at a steady rate of 10% for the next half a decade (Schepp & Schepp, 2009). Despite attaining this feat, the company also aims to become the overriding force in distributing digital media. Amazon’s sales and profitability have been at an all time high, and this is due to three growth strategies utilized in both the global and domestic retail markets. These strategies include; increase in infrastructure, digital growth, and acquisition and of other business concerns (Schepp & Schepp, 2009). Each of these strategies has been successful, and each has contributed to profitability by certain degrees as outlined below.
In increasing its infrastructure, Amazon has not ceased constructing warehouses for its products as the company is continuously enhancing its product line and services offered to its clients (Spector, 2000). The warehouses have been placed in certain target locations, to enable clients access products that they purchase online after a short turnaround time. One of the products that the company opted to venture in was groceries. The grocery business segment has been tested for a few years, notably in Seattle and this was further expanded to target the potential market in Los Angeles (Spector, 2000).
The grocery segment, dubbed the AmazonFresh enabled customers access grocery products for a whole year at a rate of 299 dollars (Spector, 2000). The expanded warehouses facilitated quality products and same-day delivery of the grocery products. Estimated income emanating from the online groceries market is 65 billion dollars and Amazon endeavours to garner a large proportion of the market (Spector, 2000).
Another strategy adopted by Amazon is the expansion of its digital services apart from the retail solely. Amazon launched its cloud offering and the Amazon Web Services since the online retail giant had anticipated massive growth in the digital services segment (Spector, 2000). Revenue generated from its digital services stood at 2 billion and is estimated to rise up to 24 billion by the year 2022 (Spector, 2000). The firm is presently seeking to expand its cloud offering internationally to boost revenue.
The third strategy applied by Amazon was venturing in mergers and acquisitions. Over the years, Amazon opted to make investments in other companies and have agreements with other marketing companies to reach a wider customer range and expand the existing market share. Some of the companies entailed in the merger and acquisition agreements include Bookpages, Internet Movie Database, Telebook, Junglee Corporation, Sage Enterprises, Geoworks,Ashford.com, Homogrocer.com and Drugstore.com (Spector, 2000). These acquisitions resulted to Amazon’s stock prices rising by a massive 234 percent, consequently according the company a 120 billion dollar valuation (Spector, 2000).
The aforementioned acquisitions have on the contrary had a negative impact on the profitability as a result of their financial value that was appended into Amazon.com. Sales have been growing steadily succeeding the acquisitions, but not profitability. Some acquisitions, such as Junglee Corporation had equity values in the range of 280 million dollars and the deal was for Amazon to take up the entire 100 percent of the outstanding shares (Saunders, 1999). A merger like that with HomoGrocer.com saw Amazon purchase 35 percent stake of the online grocer, in a bid of strengthening its grocery segment. This was worth 42.5 million dollars (Saunders, 1999). In Ashford.com, Amazon acquired a 16.6 percent stake in the retailer of luxury products by investing 10 million dollars in the online retailer (Saunders, 1999).
Majority of the mergers and acquisitions occurred between the years 1998 and 2000, and financial statements subsequent to those spells reflect an improvement in profitability as evidenced by the financial statements (Saunders, 1999). Total assets by the end of the year 2000 were totalling to 2,135,169 dollars in the consolidated balance sheet. These assets, six months later, dropped to 1,345,036 dollars (Saunders, 1999). The company, however, had a reduction in the net loss from 625,609 dollars in June 2000 to 168,359 dollars in June 2001 (Saunders, 1999). Cash flows for Amazon after considering the operating, investing and financing activities also declined, from 720,377 to 462,949 over the same period (Saunders, 1999).
Growth in the European market is capable of having a large impact on the current earnings and profits by Amazon and the United States online retail industry in entirety. Growth in the US online retail industry is projected to have an annual growth of 10 percent to hit the 370 billion dollar mark, whereas that of their counterparts in Europe is expected to grow by 10.5 percent to reach the 253.6 billion dollar mark (Saunders, 1999). This rapid growth in the European market is likely to affect the present earnings of Amazon due to the induced competition in the online retail market sphere. The company hence needs to effect its outlined growth strategies to embrace itself for this growth and consequently maintain profitability and market share (Saunders, 1999).
Amazon Business Combinations and Financial Analysis References
Saunders, R. (1999). Business the Amazon.com way: Secrets of the world’s most astonishing Web business. Dover, NH: Capstone US.
Schepp, B., & Schepp, D. (2009). Amazon top seller secrets: Insider tips from Amazon’s most successful sellers. New York: AMACOM.
Spector, R. (2000). Amazon.com: Get big fast. New York: Harper Business.
