Skip to content

Amazon.com: Torrid Growth Continues

01 February 2012no comments Internet Equity Research

Amazon logoAmazon’s torrid growth in electronics and general merchandise has prompted a major expansion in infrastructure to support its operations. The company now has 69 fulfillment centers around the world, having added 17 this year. Amazon plans to add 17 more in 2012. Amazon.com’s headcount now exceeds 50,000 people, having grown over 60 percent over the prior year, and it has begun to feel the strain of its warehouse and fulfillment operations.

Amazon also continues to invest heavily in cap ex related to its data center expansion, which is required to support the growing number of companies that tap into its web services. Starting with packages that offer five gigabytes of storage for free on a monthly basis, companies ranging from venture-backed start-ups to global corporations and government agencies can purchase computer and storage power on a per use basis, rather than make large capital outlays for computer servers, storage racks, and networking gear. AWS already has several hundred thousand customers across the globe in more than 180 countries. We expect the business to grow in excess of 50 percent compounded annually, though like its other businesses, Amazon does not report on its margin contribution.

Amazon recently launched a frontal assault on Apple in order to lay claim to its unfair share of the emerging computer tablet category. The Kindle Fire, a $199 color Amazon branded tablet, may have sold more than five million units in the most recent quarter, and we think that Amazon.com will confidently lay claim to the number two position in computer tablets within the next few months. The Kindle Fire enables Amazon to sell more of everything digital that it already sells, including video on demand, online game and music services, ebooks, audio books, pictures, and data and backup storage.

Amazon’s video on demand service, for example, allows access to over 100,000 movies and television show episodes s on a pay-per-view basis. Most can be rented for a price which ranges from $1.99 per television episode, to $2.99 per movie. Amazon also offers 13,000 movie and TV shows free for members of Amazon Prime, the company’s $79 per year service which provides unlimited two-day free shipping services. The Kindle Fire also fits well into Amazon’s Cloud Drive strategy, as it already offers 5 gigabytes of free storage for videos, games, music and other data.

It may be hard to believe that electronics and general merchandise now comprises more than 60 percent of Amazon.com’s quarterly sales, up from about 40 percent three years ago. From its humble roots as an online bookstore, Amazon.com now serves over 160 million active customers around the world. Traditionalists will be happy to note that despite rapid growth in electronic books, physical books, that is, hardcover and paperbacks grew by double digits in the most recent quarter.

Comments

There are no comments on this entry.

Add a Comment

You must be logged in to post a comment.