Amazon on track to hit $1trn market cap
Yet another eye watering set of numbers from Amazon, with second quarter sales coming in at $52.9 billion, compared with $38 billion in Q2 2017.
The e-commerce giant used to post fairly anaemic profits, but that has now changed as previous investments start to bear fruit. “Amazon’s powerful commerce engine keeps chugging along and is finally beginning to drop more to the bottom line,” says eMarketer Principal Analyst Andrew Lipsman.
“But the bigger story coming out of earnings is the significant margin expansion being driven by the acceleration in the cloud and advertising businesses. There’s still a lot of runway for both of these higher margin businesses, and with the rest of the business continuing to fire on all cylinders, the question now is whether we’ll see Amazon hit a $1 trillion market cap sooner rather than later.”
For Neil Saunders, Managing Director of GlobalData Retail, the company’s hot streak is the result of significant effort on three fronts. First, it innovates and tries new things like no other retailer. “The laundry list of projects Amazon is working on is extensive and this heady pace of creativity is the key reason why it stays several steps ahead of the market and is able to generate so much growth. Much of this is the result of a company culture of never settling and not being afraid to fail. In our view, other retailers would do well to take a leaf out of Amazon's playbook on this front,” he comments.
Second, across all of the things it tries and tests, Amazon is extremely customer-centric. It rarely innovates by increments, but instead looks to find problems consumers face and then uses technology in creative ways to help solve them. This means that innovations usually result in increased customer loyalty, improved conversion and transaction rates, and ultimately increased sales. Looking at the market from the point of view of the customer also allows Amazon to retain an edge over other retailers.
Third, it has created a compelling ecosystem which permeates many aspects of people's lives. Prime is at the heart of this and membership makes it both easy and financially sensible to buy into the many products and services on offer. “In our view, while Prime is fairly mature in a market like the US, the integration of Whole Foods into the mix is bringing onboard even more customers. Meanwhile, in other countries, Prime has a lot more runway for growth,” Saunders concludes.