5 reasons for success: why Amazon has become the most expensive company in the world
The company, which has been operating for 24 years, bypassed Microsoft in early 2019 and became the most expensive public company in the world. Amazon's capitalization exceeded $ 796 billion, while Microsoft’s value is at $ 783 billion.
CNBC listed the main reasons why the company managed to achieve such results, and its founder Jeff Bezos to become the richest person in the world. We bring to your attention the main thoughts of this material.
1. Cloud services
Despite the fact that the numbers show a faster growth of Microsoft cloud services, Amazon Web Services is confidently holding the lead.
According to the Synergy Research Group, its annual revenue exceeds $ 23 billion, the share of AWS accounts for 40% of the global market for cloud services.
AWS is used by millions of people and companies, more than 140 different services are available to developers, and business continues to capture new markets. Amazon data centers appear in places like Bahrain, Hong Kong, Italy or South Africa. Coupled with winning contracts, such as an agreement for $ 10 billion with the US Department of Defense, all this gives investors confidence in the cloudless future of the company.
AWS is also being used by more and more large companies, and Amazon is pushing them into long-term agreements. AWS began disclosing "performance obligations", that is, future revenue, "associated with signed contracts for future use of services, the exact parameters of which are not yet known." In the last quarter, this amount increased from $ 16 billion for the quarter to $ 17.8 billion (even earlier it was $ 12.4 billion).
2. Domination in e-commerce
Over time, the Amazon business has expanded and embraced many industries. However, its core is still e-commerce.
Amazon accounted for about half of all online purchases in the US last year. And approximately 90% of the company's revenue comes from e-commerce.
Within this vertical of business, Amazon’s marketplace, where third-party companies sell their products, plays an increasingly important role. The share of this marketplace accounted for 31.3% of all online sales in the United States in 2018. The numbers rose by 35.6% over the year.
What pleases investors even more is that there is still room for growth. Amazon accounts for only 5%all US trade transactions (online and offline). At the same time, the company actively invests in development in other regions, such as India, and also seeks to enter the offline retail market - in particular, for this, the Whole Foods health food chain was acquired.
3. Growth Drivers: Health Services, Alexa, and Advertising
In addition to all of the above, Amazon has other promising areas for increasing revenue. For example, advertising is included in the company's Other business activities segment - in the third quarter it grew by 122% and brought Amazon $ 2.5 billion.
Health care is also among the sectors of interest to Amazon. Last year, the company bought the PillPack online pharmacy for about $ 1 billion. Amazon also has interests in the banking sector - according to rumors, last year the company worked on launching its own analogue of bank accounts for those customers who do not have them .
Hollywood is also influenced byInternet giant Amazon Studios produces original TV shows and TV shows available to Amazon Prime subscribers. The division has already signed contracts with actress Nicole Kidman, comedian Jordan Peale and producer Cheo Hodari Coker.
Of course, the company does not earn every time someone uses the Alexa column, but this product can generate income, for example, when it is used for online shopping. Recently, the service has been integrated with Microsoft Cortana.
4. Compact management team
One of the main differences between Amazon and other large companies is that there is no bloated staff of top managers. Jeff Bezos has gathered a small number of dedicated people around him, many of whom have worked on Amazon for years and even decades.
According to media reports, the so-called S-team includes less than 20 top managers. In addition, its composition is stable - it is part of the Amazon corporate culture that Bezos is very proud of.
5. The absence of major scandals.
From time to time, the media mention Amazon in a negative context, such as during the recent attacks by US President Donald Trump, when he accused the company of “paying little taxes and using state mail to send out its goods.”
However, Amazon has not yet been involved in scandals comparable in scale to those that fell on Facebook or Apple. Investors and analysts appreciate the fact that the company is perceived as neutral, and its main business areas do not bear any clearly defined risks.
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