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Amazon Company Profile

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Amazon.com sells retail goods on the Internet at discount prices, and provides a wide range of additional services to private vendors that use the Amazon website as a marketplace for the sale of goods.  While the majority of the firm's revenues originate from book, CD and DVD sales, it has expanded into toys, beauty products, tools, and services such as film processing.  The firm also generates commission revenues from the sales made by private retailers using the Amazon site a host for auctions and other types of direct vending via the Internet.  The firm uses electronic data interchange system to minimize inventory and expedite delivery. The firm operates websites in several foreign languages and offers distribution of goods from fulfillment centers in the United States and Europe.  The market for the firm’s products and services is expanding rapidly as Internet users in the United States and other industrialized nations grow more comfortable with security protocols for online transactions.  In addition, the firm is well positioned to access online markets in developing nations through the use of custom tailored websites.  While Amazon's profitability initially followed the traditional Internet strategy of putting market share ahead of profitability, in the past two years it has altered its strategy to concentrate on developing profitability.

Executive Summary

Amazon Company Profile
  • Amazon.com is the largest retailer of goods on the Internet. Although the firm is shifting emphasis from growth of market share to achieving profitability, it continues to experience substantial losses.
  • Amazon.com's operating ratios indicate that the firm is devoting more attention to financial management, particularly in the reduction of operating costs and inventory control.  In addition, the firm is improving its gross margins and volume of sales.  Despite these improvements, operating expenses continue to exceed gross profit.  As a result, the firm has had a negative return on assets and return on equity, which is likely to continue.
  • Amazon.com's debt has increased dramatically since 1999, suggesting that the firm is using debt obligations as a means to maintain liquidity in the face of mounting operating losses.  The liquidity ratios also indicate that the firm may have difficulty meeting its short-term obligations. The stock price has fallen by 75% since 1999, the market-to-book ratio has collapsed and earnings per share remain negative.
  • The recommendation for this stock is to sell based on the fundamental position of the firm.
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