Amazon.com recently posted its second quarter, 2005, results. You can find the company's investor presentation here.
Highlights include:
- revenue was $1.75 billion, up 26% year over year
- gross profit was $450 million, up 32% year over year
- operating profit margin was 6% down from 6.2% the prior year but up from 5.7% in the prior quarter
- sales related to third-party merchants was 28% of unit sales, up from 24% the prior year. (This is significant because it represents the value of the Amazon platform as a revenue generating asset.)
The quarter marked the tenth anniversary of the company. Sales in Q2, 1995, were $2.2 million. By most measures, it has been a pretty remarkable ten years. Amazon is both a direct success story and, as I wrote about it my recent essay, a significant contributor to the raising customer expectations for all companies, online or offline.
Of course, no company can afford to stand still and there are those who question Amazon's viability.
As Justin Lahart pointed out in his "Ahead of the Tape" Wall Street Journal column, Amazon's 21% growth compares to a 24% increase in total U.S. eCommerce sales (as reported by the US Commerce Department). The market leader is really a market laggard? Although Lahart doesn't come out and say it explicitly, the column is tellingly entitled "Up the Creek."
Lahart reasons that Amazon suffers from the same competitive fate as other large companies, i.e. that the Internet progressively gets more powerful and easier to use. Thus the online giant will have to continually contend with challengers who might leverage the underlying technology as well, or better, than it does. "With technology whittling away at the economies of scale typically enjoyed by large companies, smaller companies may have advantages that they haven't in the past." This, of course, is a point with which I completely agree.
While investors should take heed, Lahart's observation about Amazon's challenge should give other businesses little comfort. Because, as Lahart goes on to note, "If this is true, Amazon won't be the only public company in the country that needs to worry about a proliferation of tiny competitors nipping at its heels." And that might be the most insightful point of all. It also reminds me of the old joke of two hikers who encounter a grizzly bear. As one races away, the other pauses to tie his shoe laces. Appalled, the first one shouts back "What are you doing? You can't outrun a bear." The other looks up and says, "I don't have to outrun the bear, I just have to outrun you."
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