Katya Smith 8 March 2021

Categories Ecommerce, Strategy & Operations

How is Amazon’s Business Shaping up for the Years Ahead?

The pandemic – and the lockdown measures that came along with it – has accelerated a shift towards the digital realm in ways that nobody saw coming. A surge in online shopping, while users were confined within their homes, has probably transformed consumers’ behaviour for good, with mobile users spending an additional hour every day online during 2020 compared to a year ago.

Meanwhile, important countries like the United States and the UK have seen a strong uptick in ecommerce sales, while research points to what could be a long-lasting change rather than a temporary shift. This changing trend has been a blessing in disguise for online retail behemoth Amazon, as the company’s sales skyrocketed during the fourth of 2020, as reflected by the company’s financial statements.

During this quarter, the online retailer revenue grew to $125 billion – the highest quarterly figure in the company’s history – pushing investors to buy Amazon shares on the day that the results were published.

Given the firm’s spectacular performance during the pandemic, Amazon’s share price managed to outperform the market as a whole in 2020, delivering a 76% gain for investors while the S&P 500 and the Nasdaq moved only 16% and 47%.

In this context, how likely it is that the current trend becomes the “new normal” for Amazon? Well, research points to this strong shift toward online shopping as a trend that could be here to stay even after the pandemic ends.

Online Marketing Expansion is Inevitable

A recent report from McKinsey indicates that 70% of online users will keep shopping online even after life goes back to normal.

Amazon is all set to exploit the increasing traffic with its innovative ideas and one of them is the launch of a QVC-style video shopping platform as a new way to help consumers in discovering new products that can disrupt their way of living.

To accomplish this, the company plans to use influencers to make compelling videos about the featured products, showcasing their experience to prospective customers to overcome any potential objections. This would help users in understanding the product in a way that is not possible at the moment through the use of words or even images.

Cloud Computing and its Endless Growth

The cloud computing market poses endless opportunities for Amazon at the moment, with some estimates valuing the market at around $250 and $360 billion over the next two years.

Amazon tenaciously holds the first position in this particular market, with roughly two times the market share of its next competitor, Microsoft. Given its privileged position, Amazon is bound to gain tremendously from the continuous growth of this market, as remote working, online shopping, and cloud-based applications keep expanding.

For now, the cloud is contributing its fair share to the firm’s overall revenues, with around $40 billion in sales generated during 2020  – roughly 11% of the firm’s total sales - and $13.5 billion in operating profits – so far the most profitable segment for the company founded by Jeff Bezos.

Amazon’s Subscription Revenues have Grown Non-Stop

Amazon’s subscription model – known as Prime – has been providing another interesting revenue stream for the online retail giant, generating $7 billion in revenue for the firm during the fourth quarter of 2020 – which represents a 35% jump compared to a year ago.

The introduction of exclusive offers and services for Prime users has probably been the most important driver for this growth, as Prime offers far-reaching benefits including music and video streaming platforms, discounts, and extremely fast deliveries.

As of now, Amazon Prime is the world's leading subscription service and, although it remains a tiny particle in the company’s massive revenue stream, it provides a steady source of cash flow to the firm.

Meanwhile, with no signs of saturation for this segment in sight, Amazon Prime already crossed the $25 billion mark during 2020 and could double this amount over the next two or three years if it keeps growing at the current pace.

Wrapping up

Even though the past year was incredible for Amazon in terms of demand, it was equally challenging for the company from a logistics standpoint.

In this regard, the firm will likely deal with political pressure and even the potential formation of a union, while the recent departure of Amazon’s founder from the Chief Executive position could add up to these challenges as the firm enters a new era of digital prevalence.