Corona profiteer: Customer loyalty instead of high margins: Amazon has that from Amazon Prime | message
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Pandemic brings Amazon sales growth
The share has gained almost 50% since mid-March
AWS is the Group’s pearl of earnings
While many corporations had to contend with a sharp drop in sales due to the rampant corona pandemic in the first quarter of 2020, the e-commerce giant Amazon generated sales of $ 75.5 billion between January and March and was thus able to increase its previous year’s figure by a good 26 Trump percent. Amazon also expects sales to be between $ 75 billion and $ 81 billion in the current quarter.
E-commerce giant benefits from exit restrictions
Only a few shares have developed as positively as the Amazon share certificates since the bottom of the Corona crash in mid-March. The shares climbed from their March low of $ 1,627 to currently around $ 2,498, putting a performance of around 50 percent on the floor.
Many investors recognized early on that the exit restrictions due to the corona pandemic would explode the demand for the delivery service from Amazon and accordingly stocked up with shares in the group. When the company announced in March that it would hire another 100,000 workers to meet the extraordinarily high demand, this confirmed the assumption of many shareholders and continued to spur the share.
With a share price increase of around 50 percent since mid-March, Amazon’s shares have even trumped the entire market. Because even the NASDAQ 100 was only able to gain around 33 percent in this period.
This is how the US company makes its money
Given that Amazon’s $ 75.5 billion in quarterly revenue is only $ 2.5 billion in profit, the question is, “How does the company actually make its money?” quite justified.
The Group’s biggest sources of income are, of course, online trading and the fee-based services that Amazon offers to independent dealers on its own so-called marketplace. Because around 40 percent of the goods that are available in the Amazon online shop do not come from the US group, but from smaller providers who use Amazon only as a digital marketplace for their products. The group receives this service monthly. In addition, dealers must pay additional fees for processing the order and shipping.
How is Amazon Prime worth it?
Furthermore, Amazon Prime is also one of the Group’s sources of income. This special membership offers its users a veritable “all-round carefree package” for an amount between 5.75 and 7.99 euros per month.
Prime customers have access to the video streaming platform, music streaming collection, e-book library, cloud storage for photos and a range of video games, among other things. In addition, shipping is free for countless items, which usually arrive the next day.
While platforms such as Netflix or Spotify only offer their customers a service from this extensive selection and for which they charge similarly high fees, Amazon offers its users everything at once. However, the company boss Bezos is well aware that this offer is not really paying off for the group for the time being and that Amazon can only achieve a net margin of around 3.3 percent. Since the Amazon CEO currently focused exclusively on company growth, new business areas and the complete satisfaction of customers, profitability is currently not a big issue.
Are Prime users the better customers?
Between 2014 and 2019, the U.S. corporation increased its revenue with Amazon Prime to a total of $ 19.2 billion, seven times as much. Sales with special membership climbed by 36 percent in 2019 alone compared to the previous year. With currently over 150 million Prime users, the service is increasingly becoming a reliable source of revenue, despite relatively low margins.
According to a study by the Frankfurt University of Applied Sciences, Prime customers spend more money on the platform than non-members. The study came to the conclusion that Amazon customers without Prime membership only order an average of two consignments worth just under EUR 100 per month, while Prime customers order an average of four consignments per month and spend around EUR 190 for them. Online buyers, who are not customers of the US group at all, only order one consignment per month on average, which corresponds to a value of around 50 euros.
The Frankfurt University study thus clearly shows that Amazon’s prime strategy is paying off. Because with a purchase value of almost 2,300 euros a year, plus membership fees, Prime users spend almost twice as much money as normal customers. In addition, Amazon succeeds in keeping users on the platform due to many other advantages. Because once the subscription fees have been paid, many users are willing to use other company services and not switch directly to a competitor.
The real pearl of income from Amazon
The online trading divisions and services related to Amazon Prime generate high sales, but do not really contribute to the company’s profit. The fact that the group is still in the black is largely thanks to the “Amazon Web Services” (AWS) division. Although Amazon is known almost exclusively for its online mail order business, the AWS web platform contributes the majority of the positive operating result. AWS is a comprehensive cloud computing platform that is available in over 190 countries and offers a variety of web services. Among other things, the AWS portfolio consists of Amazon Cloud Drive, Amazon Cloud Search, Amazon Dynamo Database, Amazon Mechanical Turk, Amazon Redshift, Amazon Simple Storage Service and many other services.
Analysts continue to advise buying the share
The business with the cloud is currently so profitable for Amazon that it can compensate for the rather unprofitable sectors around the mail order business. As a result, analysts also believe that Bezos shares can continue to rise. The experts from UBS, Goldman Sachs and JPMorgan calculate the fair value of the share at $ 3,000. With regard to the current level, the analysts therefore expect the share to gain almost a quarter of its value in the coming weeks and months.
Pierre Bonnet / editors Forex-news.com.net
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