This paper looks at the growth strategies adopted by Amazon.com and their effect on the company’s profitability. Further it looks at the influence of the company’s acquisitions and investments on the financial value and profitability of the company. The paper also briefly looks at the likelihood of the company’s success in the European retail market.
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Growth strategies and profitability
One of the growth strategies utilized by Amazon.com is expansion of the product and service portfolio offered on its online portals. Having started as an online bookstore, Amazon has expanded to be the online store for nearly everything. As of June 2017, Amazon had a market capitalization of $469 billion; being one of the top four world’s most valuable company, the most valuable retailer in the United States and the largest internet company in the world in terms of revenue (Wolff-Mann, 2017).
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Expansion of Amazon’s product and service portfolio is partly achieved via investment in major companies, hence becoming partners of quality products and services. Some of the companies that Amazon has purchased equity stakes over the years include Drugstore.com, Pets.com, Sothebys.com. Apart from the equity sharing, this enables Amazon to understand and utilize some of its target markets so as to increase its market share and enhance profitability whilst offering online presence to some of its partners.
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Through offering strong business partnership propositions, Amazon also collaborates with publishers and booksellers. For example, Amazon is able to offer various distribution channels of books; including marketing, selling and delivery (Wolff-Mann, 2017).. These are almost for all the publishers including such major publishers as Pearson, Oxford University Press and HarperCollins. Booksellers that Amazon collaborates with include Borders and Waterstones. In so doing, Amazon retains its original mission of an online bookstore as part of its present operations. The sector’s contribution to Amazon’s profitability is ______, meaning it is not a sentimental only venture.
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The company has also been able to expand its product portfolio and turnover through acquisition of a variety of companies. Since 2007, the company has acquired various companies such as Zappos, Toys R Us and Whole Foods. This growth strategy has seen Amazon.com acquire various profitable companies that have positively contributed to its bottom line. Some acquisitions have not been successful at the start such as Toys R Us, but then this fit in with the company’s long-term strategy.
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Another growth strategy adopted by Amazon is expansion to international markets. Gradually, the company has expanded to cover most of the world through localized delivery. This has led to the company having profitable operations in such markets as Germany and United Kingdom. Notably, not all international forays have been profitable, with losses experienced in such markets as India. Nonetheless, the internationalization of Amazon has generally been profitable.
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Acquisition’s financial value and influence on profitability
The largest acquisition by Amazon to date is the June 2017 $13.7 billion buyout of Whole Foods. This was at $42 per share compared to its $33.06 per share, a premium of 27%. The acquisition of Whole Food’s boosted Amazon.com’s profitability in the summer, with the company’s shares rising more than 7% (52 cents per share contrary to analyst’s expectations of 3 cents per share) and the net income rising to $256 million in the third quarter ending September 30, 20171. Analysts further expected revenue from the third quarter to be $42.1 billion, but it was $43.7 billion boosted by sales of $1.3 billion from Whole Foods ( (Dastin and Venugopal, 2017).
Another big acquisition by Amazon.com was Zappos in 2009. It has been noted that the acquisition was primarily for the staff and the concomitant company culture, with Amazon retaining its online footwear department. Whilst Zappos retained its market leadership until 2014, it was overtaken by Amazon in 2015, with the latter having 25.1% market share and the former shrinking to 15.5% market share (Anderson, 2017). It can hence be that Amazon took Zappos’ values to boost its market share and concomitant profitability, considering that the combined market size of the two Amazon online footwear companies has grown to become the dominant force in the marketplace.
With the long-term investment strategy inherent at Amazon, the company jettisons companies that prove unprofitable over a period of time or that no longer serve their purpose of inculcating desired values to the corporation. This is evident in its shuttering of various sites that do not turn a profit operated by Quidsi (e.g. Diapers.com), a company that it acquired in 2011 (Anderson, 2017).
Amazon has built strong brands in Europe’s largest economy of Germany as well as in the United Kingdom. This is unlike in such Asian markets as India and China. This success in Europe is related to R&D and brand building to be viewed as a company that offers quality products and services. Failure in the India market has been attributed to price sensitivity in a market with varied choices.
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Amazon is also likely to be successful in Europe due to enabling government regulations and retail procedures akin to the North American market. Market entry, taxation and respect for intellectual property that spur R &D are a favorable business environment for the company (United States Securities and Exchange Commission, 2016). Developed infrastructure in Europe would also be a boon for Amazon since it would effectively facilitate its customer reach. This is because product delivery is a core component of the Amazon business and the infrastructure would enable effective and efficient shipping, unlike in other markets (e.g. Asia, South America and Africa) where the infrastructure is not as developed.
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