Amazon.Com Business Combinations and Financial Results Analysis Essay
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=getcompany.
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.
1.0 Growth strategies
Amazon.com employs various growth strategies. The firm’s management has successfully adopted a range of marketing and internal policies perspectives. Amazon has considered the use of marketing strategy using Ansoff matrix as one of its growth strategies. Others adopted include those that target internal policy framework and seeking mergers and acquisitions. They are have majored in maximizing on customer perspectives, internal perspectives, innovative perspectives and financial perspectives. Ansoff matrix has been successfully utilized towards strengthening the market position of Amazon.com. Diversification has been adopted in an endeavor to increase profitability through creating new innovative products as well as new markets. New products and services in new markets create business financial sustainability. Moreover, through market development in which Amazon has sought to expand potential market by finding new users the company has attained a new niche. Thirdly Amazon has capitalized on market penetration. In this strategy, Amazon has capitalized on markets in areas where they already have a market presence. Lastly, Amazon has focused on product development through which a new product is innovated in the market. This growth strategy makes Amazon command a large market share in the area and line of product it deals with. Other growth strategies aim at enhancing customer satisfaction, financial control, innovation and internal controls. These are done with an overall goal of ensuring that the company gains a competitive advantage and enhancing sustainable growth. Customer perspectives are geared towards ensuring that customer is satisfied and obtains value from Amazon’s products and services. Internal perspectives are geared towards enhancing internal processes in such a way that growth will be realized and the firm will achieve efficient operation. Innovative perspectives aim at creating value through new processes and products. Thus, innovation leads to growth. The financial perspective aims at deepening financial knowledge and related management at Amazon especially with regard to improving the welfare of its shareholders. Moreover, the company has focused on growth strategies such as acquisitions in which the company has obtained synergies that ensure future growth.
2.0 Financial value of acquisitions and their influence on profitability of the company
According to Auerbach (2008), the financial value of such acquisitions can be viewed and measured by the consequent resulting benefits of such acquisitions. The benefits can be as a result of the goodwill or synergies. For instance, in 2008, the goodwill that came up after an acquisition by Amazon was $178 million. In real sense, this value actually surpasses the fair value of the assets acquired. This value was incorporated in the consolidated balance sheet. Additionally, another acquisition that took place was in 2006 in which the goodwill was $33 million. From this trend, we can deduce that the acquisitions have had a positive financial impact given that goodwill was realized as an asset. More importantly are the synergies that would be created out of the mergers. Synergy values created take the forms in which Amazon.com would realize higher revenues. This would not have been the case if it operated on its own. Expenses, in which Amazon.com would have incurred are also greatly diminished. This would not have been passible if it operated individually. Another synergy value the is reduction in cost of capital. By coming together Amazon.com was able to significantly cut overall cost of capital. The popular form in which these synergies are put is 2+2=5 and not 4. Having achieved these synergy values, it is imperative that a bigger profit would be realized than before. Such an acquisition would impact on profitability positively. Though it is not in all the cases that such synergies are realized, Amazon case has been the desirable case (Auerbach, 2008).
3.0 Effects of acquisition on equity investments
The effects of acquisition have far reaching effects. As much as the overall share price of Amazon.com may go up, there could be an effect of the value of existing ordinary shares. This is the diluting effect in which the earning per share of the existing equity shares may decline. The new formed Amazon.com shareholders could realize increased earnings per share but the existing shareholders suffer a reduction in EPS (Carney, 2009).
4.0 Comparing market growth and earnings of Amazon.com
Growth in European market can have a significant impact on current earnings and profit of Amazon. This is because a large market share would be realized out of growth of the market. This would stipulate that more sales volume and hence more profit is made. Such a favorable macro growth would replicate itself to Amazon.com current earnings and profit. This rationale has assumed other variables remain constant including the average price of goods and services and other costs. In most cases, an improvement in macroeconomic environment has a trickledown effect in which firms adjust to the same accordingly. The only debatable argument would be the degree of this change as simulated in earnings. There may never be a unitary movement but the change could rather be inelastic (Auerbach, 2008).
Auerbach, A. (2008). Mergers and acquisitions. University of Chicago Press, Chicago.
Carney, W. (2009). Mergers and acquisitions. Aspen, New York.
Mckienan, P. (1992). Strategies of growth : maturity, recovery, and internationalization,
Routledge, New York.