Is Amazon Struggling? A Closer Look at International Growth and Media Performance
Amazon has released its financial report for the past fiscal year, which led to a temporary stock price drop of up to 10 percent. It’s no wonder that practically all media outlets report in unison that Amazon is struggling.
A closer look at the revenue figures, however, shows that the company is still doing well. The stock plunge is primarily due to a surge right before the release of the figures, followed by disappointed investor expectations that had anticipated stronger (media) growth. Particularly outside the US, revenue hasn’t grown as much as in previous years. As always, Amazon does not disclose individual numbers for its foreign operations. Overall, the company managed to generate $29.93 billion outside of the US in 2013, which represents an increase of nearly 14 percent compared to 2012 ($26.28 billion).
International Growth Despite Headwinds
For comparison: The German branch of Amazon generated around $8.7 billion in 2012 (+21 percent). In 2011, it was $7.2 billion (+36 percent), and approximately $5.3 billion in 2010. Another slowdown in growth is therefore not particularly surprising and follows the trend of recent years.
When the market reaches a certain level of saturation, you can’t continue to grow at the same rate as when online shopping was still in its infancy. Adding to this, Amazon faced significant headwinds in Europe in 2013, with both its tax practices and working conditions under scrutiny (and still are). This is especially true in Germany and the UK, which are simultaneously the company’s most important foreign markets (ranked 1 and 3; with Japan in 2nd place).
Media Growth Lower Than Expected
At least one thing is surprising: Amazon’s media growth turned out to be relatively weak. This likely contributed to the stock plunge, because even though Amazon has reported only small profits or even losses in the past, investors could always be assured that the content offering was solidly positioned for the long term. In the US, with growth in media revenue (eBooks, books, music, movies, series, apps) of almost 18 percent (from $9.19 billion to $10.81 billion), there were no problems. Internationally, however, the situation is less favorable, as Amazon saw an increase of less than 2 percent (from $10.75 billion to $10.91 billion).
With a promotional price during the holiday season, the Kindle Fire HD briefly reached 2nd place
Why the growth was so minimal can only be speculated due to lack of detailed figures. However, it can be assumed that the eBook business is still performing well. On the other hand, the video and app sectors are likely problematic, as Amazon primarily attempts to sell these through the Kindle Fire Tablets. Tablet sales appear to be sluggish, at least in Germany, as we have previously reported. In the Top 100 electronics charts, Kindle Fire devices are usually found far behind, while the eBook readers consistently hold the top 1 and 2 spots.
Another stumbling block is the rumor that Amazon might increase the cost of Prime membership in the US. Currently, the premium service costs $79 per year, with whispers of a hike between $20 and $40. Most media speculate that the current price is no longer sustainable. However, it is equally possible that a price increase is linked to the current rumors about a potential Amazon game console. It wouldn’t be surprising if the shipping giant extends the Prime membership to the new device and offers various (possibly costly) perks as part of it.
In conclusion, it can be stated that last year’s revenue figures are by no means poor, and Amazon continues to show quite impressive growth that other companies would certainly like to see. However, in the media segment (videos, series, apps) in international markets, the retail giant needs to come up with something, as the Kindle Fire Tablets are not generating enough momentum, at least in this country.
For the coming months, Amazon offers a mixed outlook: For the current quarter, the company will either record a profit or a loss of up to $200 million. This suggests good chances that the retail giant might indeed introduce a new product soon. A potential Kindle DX successor (code name: Kindle Ice Wine) is highly anticipated.
