Amazon's Healthy Growth Outdistancing The Competition

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Despite the impending doom brought by COVID-19, Amazon continues to grow. Nothing can slow down its retail operations, which are propelling the company way ahead of the competition.

Amazon is one of the most prominent players in the online retail world, and as such, it is always right to look at it as a substantial investment opportunity. It's shares continue to sell-off at the same rate as they did in the first fiscal quarter of 2020. 

Amazon's strategy of solidifying competitive advantage appears fruitful. The company remains the leader in the market, even though the investors are not happy about the way the company manages finances. 

The experts, as well as investors, expected to see a slowdown in Amazon's growth, especially after the company announced that it's going to reinvest all of its profits generated during the second fiscal quarter of 2020 for COVID-related expenses. 

The revenue growth is steady, and it goes up by 22%-25% year-over-year. The sudden drop in profits was expected, given the fact that Amazon continues to invest in COVID-19 testing laboratories, thermal cameras, thermometers, and protective equipment. 

Amazon managed once again to outdistance the competition and paint the company as a viable investment option.

Amazon's Healthy Growth Outdistancing The Competition

Large Volume Sales, Healthy Growth, and Reinvested Profits

If we take a closer look at Amazon's business model, it becomes clear that the company is not interested in making money by cashing in on significant profit margins. Instead, the company focuses on large volumes.

Over the years, the company became this massive enterprise with thousands of employees, warehouses, and offices. With so many assets, it becomes clear that Amazon has a very large fixed cost basis.

If they want to sustain the growth, the company has to ensure a significant revenue stream, something that can only be done via higher volumes. Even with small profit margins, the company can make enough cash thanks to the vast number of sales.

The company's North American unit growth of 29% did not come as a surprise. The trends on the market were in favor of Amazon. That spike in demand would have only been met by a company as big as Amazon. The surge in demand will continue in the upcoming months. It is safe to assume that Amazon will continue to capitalize on this development, which will definitely reflect the reports after the third fiscal quarter of 2020.

Amazon profits don't solely depend on eCommerce sales. The company has a variety of digital offerings, including Alexa, music, and video. It expects to see more customers investing in these services in the months to come, which will further facilitate its growth.

Amazon places high hopes into the Prime membership because it unlocks a lot of perks for the consumers. The officials hope that the average basket size will increase once the customers get familiar with all the benefits this Prime membership brings to the table. During the COVID-19 pandemic, Amazon's Prime subscriptions grew to $5.6 billion.

The company also decided to play an important role during the COVID-19 pandemic. The company's CEO, Jeff Bezos, believes that the company should reinvest its profits into COVID-related expenses. The primary goal at the moment is to keep the workforce safe while still being able to deliver products to customers. 

AWS Performance Is Expected to Bloom

Amazon Web Services (AWS) is one of the central Amazon's revenue-generating assets. The company's cloud platform increased its revenue by 33% year-over-year in the first fiscal quarter of 2020. The growth is significantly lower when compared to the 37% growth in 2019. 

Amazon's Healthy Growth Outdistancing The Competition

Given the fact that the cloud platform services market is highly competitive, this is not a huge deceleration. Amazon is competing against Google and Microsoft. For the same period, the Google cloud platform grew by a considerable margin. Its revenue increased by 52% year-over-year during the first fiscal quarter of 2020. 

The AWS Growth Is Expected To Follow The End of the Pandemic

The performance of AWS is tied to other verticals. The global conditions are currently not as supportive, but experts believe that the situation will change for the better once the pandemic is over. The success of AWS is tied to the travel and hospitality industries. These two verticals took a significant blow due to the pandemic. Once the economy powered by these two industries reopens, we should expect to see growth in revenue generated by AWS.

AWS keeps attracting businesses of all sizes running from startups to big enterprises. The decrease in profits came as a consequence of Amazon CEO's decision to reinvest cash in COVID-related expenses. It had nothing to do with a decrease in revenue. In fact, Amazon continues to grow its revenue. The expected growth rates range from 20% to 25%.

There is one more thing worth mentioning while we are talking about growth. During the last three years, investors were willing to pay 32 times Amazon's trailing cash flows from operations on average. Amazon's decision to reinvest its profits into pandemic-related expenses caused the investors to be willing to pay 29 times the company's trailing cash flow.

All the current numbers tell us that Amazon is successfully navigating through these uncertain times. It is obvious that the company's operations didn't take a massive blow as expected by some experts. The revenue growth both in retail and AWS sectors is not as high as initially projected, but it is still growing within the limits of a healthy rate.

If we consider the market share and growth rate of its competitors, it is safe to say that Amazon managed to outmaneuver the competition and outdistance itself from it.

Stay tuned for regular updates on all Amazon events.

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