Amazon SWOT Analysis & Porter Analysis

Laura Benhamou is a Junior Financial Analyst at I Know First.

Amazon SWOT Analysis & Porter Analysis

  • Amazon’s growth has continued into the second half of 2016amazon_logo_500500._V323939215_
  • Its revenue growth has been increasing quarter to quarter
  • SWOT Analysis
  • Porter Analysis
  • I Know First forecast Bullish View On AMZN

Amazon (AMZN) is one of the best online retailers and it will continue its success and growth into the second half of 2016. One out of every three product searches online is done through Amazon.com and nearly half of online sales are filtered through Amazon.com.

Currently, despite lots of competition, Amazon has a strong base of loyal customers who repeatedly buy from the online retailer. What is the key to such success? According to Jeff Bezos, the founder and CEO of Amazon.com, the company’s success lies in its low-cost structure and wide variety of merchandise.

Here is the SWOT analysis of Amazon:

Strengths

  1. Strong background: Amazon now has lots of product categories that include electronics, toys, games, home, ect. Amazon has evolved as a global E-commerce giant in the last 2 decades.
  2. Customer centric: The company’s CRM has created customer centric processes in order to carefully record data on customer’s buying behaviour. This enables them to offer individual items based upon preferences. The company claims that 55% of their customers are repeat buyers resulting in low cost of acquisition of new buyers.
  3. Cost leadership: In order to differentiate itself, Amazon has created several strategic alliances with other companies. The most important one is with logistics companies like Protect & Gamble who control costs.
  4. Efficient delivery network: Amazon has created a deep and structured network in order to make the product available even at remote locations.
  5. GLOCAL strategy: By using the strategy of “Go global & act local”, Amazon is able to fight with domestic E-commerce companies. For example, in India, Amazon is currently using the “Aur Dikhao” social media campaign to encourage users to browse more of their products.
  6. Acquisitions: Acquiring companies like Zappos.com, Junglee.com, IMDB.com, woot.com, etc. proves that Amazon is a successful as an E-commerce giant.
  7. Low cost structure. By only selling online, Amazon doesn’t incur any cost related to running physical retail outlets, which are usually very high.
  8. Third party sellers. Amazon’s business model includes accommodating third party sellers who are able to offer their own merchandise on Amazon’s sites and whose products therefore compete against Amazon’s.

Amazon SWOT and Porter Analysis

Weaknesses

  1. Shrinking margins: Due to extensive delivery network and price wars, Amazon’s margins are shrinking, which is resulting in losses.
  2. High Debt: In many developing nations, Amazon is still struggling to make their business profitable.
  3. Product flops: Amazon launched the fire phone in the US which wasn’t a successful product. There were several product flops which caused a dent in Amazon’s deep pockets.
  4. The strategy of offering free shipping to customers should be reconsidered. It is rumoured that shipping costs could be up to $500m, and such a high figure would undoubtedly erode profits.

Amazon SWOT and Porter Analysis

Source : Market Watch

Opportunities  

  1. Backward Integration: They can differentiate their offering. This will help them make profits in highly competitive E-commerce market.
  2. Global Expansion: Expansion mainly in Asian developing economies will help Amazon. Indeed, those markets have low competition in E-commerce industries and are not saturated like developed economies.
  3. Acquisitions: By acquiring E-commerce companies, Amazon can decrease the competition level and also can use the specialized capacity of the other company.
  4. Opening physical stores outside U.S: It can increase the dominant position of Amazon.

Amazon SWOT and Porter Analysis

Threats

  1. Low entry barriers of the industry: Low entry barriers affect the current player’s business. Indeed, more companies means tough competition, price wars, etc. which can put in question the sustainability of the players.
  2. Local competition: There are many local players who take bites from the market share thereby making it hard for a big player like Amazon to make profits. For example, India has Snapdeal and Flipkart which are local E-commerce retailers that are taking away majority of the market from Amazon.
  3. International competitors may also intrude upon Amazon as it expands. Joint ventures, strategic alliances, and mergers could see Amazon losing its top position in some markets.
  4. Seasonality: The products that Amazon sells tend to be bought as gifts, especially at Christmas.

Amazon SWOT and Porter Analysis

Here is the Five Porter Forces:

Supplier Power

  • Amazon has marked advantages with most of the providers (for example: books and audio) because these companies do not charge Amazon for their products until the moment that Amazon sells them.
  • Amazon pays suppliers for these products only 35 days after the item has been sold, meaning that the likelihood Amazon paying for products that are eventually returned is slim.
  • Companies are prepared and ready to provide services and products to Amazon.

Buyer Power

  • Consumers that buy goods in Amazon tend to become regular clients due to the low prices that Amazon can offer which is hard to reach by the competitors
  • The low average of clients switching from Amazon products and services to those of the competence is satisfactory.
  • Low prices is the principle attraction that Amazon offers to each client.

Competitive Rivalry

  • Amazon is one of the top companies into the E-Commerce field which gives to Amazon a certain level of tranquillity into the market
  • Amazon has innovated along the years reaching highest levels of customer’s satisfaction which can assure their position into the market for future years.

Threat of Substitution

  • The name of Amazon is well recognized and trusted into the field that’s why Amazon does not face threats of substitution at least in the short time

Threat of New Entry

  • The internet has shown that a simple idea can offer an extraordinary results, as seen with Facebook or YouTube. Indeed, these companies have developed their websites in a short period of time with incredible results. This can be a proof that a threat of new entries into the market of Amazon is possible.

Forecast:

I Know First is a FinTech company that created an advanced state of the art algorithm based on artificial intelligence and machine learning to foresee market performance for more than 3,000 markets including stock forecasts, world indices, commodities, interest rates, ETFs, and currencies. In essence, the algorithm generates a signal and a predictability indicator. The signal is the number at the center of the box. The predictability is the figure at the bottom of the box. At the top, a particular asset is identified. This format is standardized across all forecasts the results of these predictions are shown on a daily basis on the I Know First website.

I Know First has a bullish forecast on AMZN for the one-month, three- month and one-year forecast.

Amazon SWOT and Porter Analysis

In this stock forecast, we can observe that AMZN had a signal of 10.41 and a relative strong predictability of 0.17 on July 10th, 2016 for the 1-month forecast, for the 3-months forecast, a signal of 25.5 and a relative predictability of 0.16 and for a year forecast a signal of 21.25 and predictability of 0.31.

Past Predictions

In the past, I Know First has predicted correctly the bullish signal for AMZN stock movement, as seen in the forecast from February 10th, 2016. AMZN had a bullish signal of 2.25 and a strong predictability indicator of 0.17, managing to bring high returns of 14.93% in just 14 days.

Amazon SWOT and Porter Analysis

Conclusion:

For the reasons illustrated in this article, we recommend investing in AMZN for fruitful results. I Know First’s algorithmic analysis of Amazon mirrors the bullish stance that the company is taking on AMZN.  The indicators throughout this article suggest that AMZN will be of long-term value going forward, and investors should consider adding shares of AMZN to their portfolio.

 


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