Pengqia Chen Page 1

Pengqia Chen Page 2

Company Background . . . . . . . . . 3

Summary . . . . . . . 3

History . . . . . . 3

Industry . . . . . . 5

Competitors . . . . . . 6

Stock Price Analysis . . . . . . . . 7

Risk and Return Analysis . . . . . . . 11

Resources . . . . . . . . . 14

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Background

Company Summary:

Amazon.com is an American international e-commerce company with

headquarters in Seattle, Washington, United States. Founded in 1994, it is the world’s

largest online retailer. Amazon.com started as an online bookstore but soon diversified

into selling DVDs, VHS tapes, CDs, video and MP3 downloads/streaming, software,

video games, electronics, apparel, furniture, food, toys and jewelry. The company also

produces consumer electronics, notably the Amazon Kindle e-book reader and the Kindle

Fire tablet computer. It is also a major provider of cloud computing services.

In 1996, it was reincorporated in Delaware. Amazon issued its initial public

offering of stock on May 15, 1997, trading under the NASDAQ stock exchange symbol

AMZN, at a price of US$18.00 per share. Amazon has separate retail websites for United

States, United Kingdom, France, Canada, Germany, Italy, Spain, Australia, Brazil, Japan,

China, India and Mexico, with international shipping to certain other countries for some

of its products.

Company History:

In July of 1995 Amazon made its first sale on the internet. Today, Amazon has more

than 152 million active customer accounts and more than 2 million active seller accounts.

Learn the history of Amazon Inc. is a very important reason before to know about their

stocks in the market. If we want to know about their success today, we should go back

and take a look the history of the company. After that, we can understand and gain more

about how Amazon is success step by step.

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Amazon.com was started by Jeff Bezos in 1994. At the time, his company was

run completely from his garage in Bellevue, Washington. During the first month of

business, Bezos fulfilled and shipped orders to all 50 states, and to 48 countries. Books

were the only product available at that time. Bezos wanted Amazon.com to be more than

just a retail website; he wanted to create an online community. Early on, he added a

feature that enabled readers to add their own book reviews for all customers to view.

On May 15, 1997, the company went public. The initial public offering (IPO) was

targeted at $18, but by the end of the day, public demand had pushed the share price to

more than $24 per share. The company had raised $54 million. Amazon.com is listed on

NASDAQ as AMZN. On July 1995, Amazon.com sells its first book: Fluid Concepts and

Creative Analogies: Computer Models of the Fundamental Mechanism of Thought. It

means that they start to do business to the public. Amazon started to run their business to

make money.

Then, amazon went to its expansion and popularity step. In 1997, Amazon.com

added movies and music to its offerings. At the same year, on October 1997, Amazon’s

one-millionth customer places order which is hand-delivered by Jeff Bezos to customer in

Japan. In 1998, Amazon opened its first international sites in the United Kingdom and

Germany, where it quickly enjoyed success. In 1999 the company opened four order

fulfillment centers in Fernley, Nevada; Coffeyville, Kansas; and Campbellsville and

Lexington, Kentucky to handle the large mass of orders. Time Magazine featured Jeffrey

Preston Bezos as Person of the Year in 1999, calling him "king of cyber commerce." In

2005, Amazon launched the program in the contiguous United States called Amazon

Prime. On November 2007, Amazon introduces Amazon Kindle to the public. On

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September 2011, Amazon introduces Kindle Fire, Kindle Touch and Kindle Touch 3G.

On December 1, 2013 that Amazon Prime Air is a possible future delivery service

expected to be many more years in development.

Industry:

Until Amazon is an online selling company, so Amazon product lines include all

different kinds of products. For example, books, DVDs, music CDs, software, videotapes,

software apparel, baby products, consumer electronics, beauty products, gourmet food,

groceries, health and personal-care items, industrial & scientific supplies, kitchen items,

jewelry and watches, lawn and garden items, musical instruments, sporting goods, tools,

and toys & games.

Even though Amazon is an online selling company, it still has the industry in the

other areas. Consumer electronics is one of their biggest parts of industry in this online

company. In November 2007, Amazon published its Amazon Kindle; an e-book reader

which can downloads eBooks by using wireless network. The screen uses E Ink

technology to reduce battery usage and to provide a more legible display. Until 2011, the

user of the Kindle over the world had over 850,000 people. The success of Kindle didn’t

stop the next step of Amazon to developing new products to the market. In September

2012, Amazon published the second generation tablet, called the Kindle Fire HD. On

September 25, 2013, Amazon kept published its third generation tablet, called Kindle

Fire HDX.

In addition, Amazon also focuses on the fast and efficiency shipping area because

they want to make their customers satisfied more about their services. In 2005, Amazon

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launched a fast delivery service called Amazon Prime in the United States. Then, it

expanded to the United Kingdom, Germany and Japan. Amazon Prime is a service of free

two-day shipping on all eligible purchases, it required the users pay for the annual fee in

the beginning. It seems like the VIP member services over the Amazon club. Also, if the

users of Amazon want the inventories come faster, they have chance to get the discount

of one-day shipping rates. As an online selling company, the speed of delivery is the most

important factor to make the customer satisfied. So Amazon kept developing their

delivery service. In 2013, Amazon announced their update delivery service called

Amazon Prime Air. Amazon Prime Air is a possible future delivery service that use

drones to deliver small packages (less than five pounds) within 30 minutes by flying short

distances from local Amazon Fulfillment Centers. It can use in the big city such as New

York because the horrible traffic cause the delivery speed slower than usual. The idea of

fast delivery had already changed the industry of online shopping until today and in the

future.

Competitors:

Taking a look at the four major Amazon competitors in the different areas, these are

the followers: eBay.com, an American multinational internet consumer-to-consumer

corporation. Apple Inc, an American multinational corporation that designs, develops,

and sells consumer electronics, computer software and personal computers; Wal-Mart,

which is an American multinational retail corporation that runs chains of large discount

department stores and warehouse stores.

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Company EPS Market Cap Net Income P/E Ratio # of employees

Amazon 0.59 157.52B 274000 581.34 117300

eBay 2.18 72.55B 2856000 25.71 31500

Apple 40.23 483.15B 37037000 13.46 80000

Wal-Mart 0.04 247.90B 16022000 1744.77 2200000

* figures from nasdaq.com, finance.yahoo.com

Table 1

Stock Price Analysis:

Table 2

Date Amazon Inc Closing Price S&P Closing price

17-Mar 375.04 1858.83

18-Mar 378.77 1872.25

19-Mar 373.23 1860.77

20-Mar 368.97 1872.01

21-Mar 360.62 1866.52

24-Mar 351.85 1857.44

25-Mar 354.71 1865.62

26-Mar 343.41 1852.56

27-Mar 338.47 1849.04

28-Mar 338.29 1857.62

31-Mar 336.37 1872.34

1-Apr 342.99 1885.52

2-Apr 341.96 1890.9

3-Apr 333.62 1888.77

4-Apr 323 1865.09

Amazon Inc, S&P 500 Closing Price:March 17- April 4, 2014

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Graph 1

From Table 2 and Graph 1, we can see the stock movement of Amazon was all the

way going down. On the other hand, the stock movement of S&P 500 was not that

stabilize because the stock of S&P 500 went up and down in the period between 03/17-

03/25, then the stock price went all the way down until 03/27. After 03/27, the stock price

of S&P 500 kept going up until around 04/02 then it went down again. On the 28th of

March, the stock prices of Amazon and S&P were moving together.

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S&P 500 Close Amazon Close

Date

S&P 500 and Amazon stock price comparison from 03/17/2014- 04/04/2014A

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With the news I found about Amazon over finance.yahoo.com, it can tell us why

the stock price of Amazon went down almost $55/ share between 03/18/ to 04/04. First of

all, Amazon had announced that the membership annual fee of Amazon Prime from $79

per year to $99 per year just a week before 03/18. It means that starting in seven days, the

cost for existing members to renew will increase by $20 from $79.99. The company said

blamed the increase on increase fuel and shipping costs. While gas prices are lower than

they were a year ago, the company said the price of Amazon Prime hasn't changed since

it started nine years ago.

As the customers in Amazon, the raised of their Prime membership annual fee means

that Amazon would lose some numbers of customers. In addition, the raised of the

membership annual fee price not only caused the loss of their customers, it also caused

the investors of Amazon lose their expectations about the future of the company. The

investor may also worried about the loss of the Amazon customer will decrease the profit

of the company. As the result of the raised of Prime membership annual fee, the stock

volume of Amazon changes would also cause the interest in Amazon stock changes.

In addition, Amazon.com Inc. is preparing to launch a game console/TV set-top type

device in early April. That is a new video-streaming device resembles the so-called

Chromecast dongle. It will run on Google's Android software and may support streaming

full PC game titles, which could allow it to compete with consoles like Microsoft Corp.'s

(MSFT) Xbox, and the Amazon device also will compete with video-streaming devices

from Apple Inc. (AAPL) and Google Inc. (GOOG). Even though the new video

steaming device of Amazon is a new idea product for the company, it still has high risk in

the market because Google and Microsoft had entered the market earlier than Amazon.

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As an intelligent investor, I will consider about the new product introduction of Amazon

is a turning point of the company stock. Different than the new iPhone launch every year,

the new Amazon video streaming device is the absolutely new device for the market.

Customers may not know all of its features, and the pricing for Amazon’s device remains

unclear. Similarly with the memberships annual price increase of Amazon Prime, the

launch of new video streaming device just causes the company stock drop down between

the period between 03/17- 03/25. The stock price may go up in the future but it drops

now because the investors don’t want to invest in the risky product of Amazon.

Another news from one of the competitor of Amazon was Microsoft announced that

they publish the new version of Microsoft Office for any Apple iPads in March 18. Until

Apple is also the competitor of Amazon, this news would raise the stock of Apple Inc.

but not Amazon Inc. because the Amazon Kindle fire would lose the competed

advantages with Apple iPad. Also, it would lose the investment confidents of the Amazon

investors about the stock. And the market shares of Amazon just dropped down compare

with Apple. That is why the stock price drops during 03/17- 03/25.

On the other hand, when I search the news over finance.Yahoo.com, it states, “The

S&P 500 closed at another record high on Wednesday as signs of steady private-sector

hiring suggested that the economy was slowly building momentum after a winter-related

pullback.”

Another relevant news about the rose of S&P 500 was the geopolitical fears related

to the Ukraine crisis. In March 18th, Russian President Vladimir Putin refuted claims that

Moscow did move to annex Crimea. And Crimea is the other parts of Russia but not

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Ukraine. As the result, the Crimea crisis will hold the investors turn their investments to

the stock market of North America because it would be more safety than they invest in

European countries or Russia. In this crisis, the biggest winner was the United States of e

America because it gains the investors from all over the world to come to invest in

America. Until America don’t want the war with Russia because of the Crimea crisis, the

U.S. stock market will be stable, and America will not have the chance of the war again

because President Obama only went on to supplement these sanctions with some of his

own on close advisers to Russian President Vladimir Putin. That was why the stock of

S&P 500 rises from 03/27 to 04/02.

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Amazon Inc: Price and Volume from 03/17-04/04/2014

Volume Open High Low Close

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Graph 2

The second graph just follows the previous discussion. The volume of the Amazon

stock was down after the day Amazon announced that the membership annual fee of

Amazon Prime from $79 per year to $99 per year, this negative news had impacts about

the stock price go down in the future days.

Risk and Return Analysis

Comparison of Company β's, Safety Ratings and Analyst Recommendations

Return -1.0494% 0.0259%

Standard

Deviation 0.015422482 0.006152882

Variance 0.000237853 3.7858E-05

Covariance 7.93228E-05

Beta 2.095272754

Company β Safety Rating Average Analyst

Recommendations

Amazon 0.78 3 1.9

eBay 0.9 2 2

Apple 0.73 1 2.1

Wal-Mart 0.4 1 2.4

* figures from finance.yahoo.com, and Value Line

Table 3

Amazon’s β and the safety rating are the two elements that I will think about with the

research of the company. Amazon’s β is lower than eBay but higher than Apple and

Wal-Mart. Amazon is a diversity and international company; it has many of the branches

in different countries. Moreover, Amazon is not only an online selling and buying

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company; it also provides many services in different areas. In the company history, CEO

Jeff Bezos has strong leadership to lead the company in the right direction. Until today,

Jeff Bezos is still the CEO of Amazon. Under his leaderships, Amazon came out many of

the new idea to improve the company and the lives of everyone in the world. For example,

Amazon Prime helps the customer of Amazon can get the orders as soon as they wanted

the inventories. Amazon Kindle helps their customers read easily over the eBooks, so

they don’t have to carry different kinds of the books at the same time. It also makes their

lives more convenience. In the future, Amazon Prime Air may help their customers get

the orders much faster than right now. With the customers’ feedbacks and the product or

services themselves, Amazon is a company which has fair amount of risk. Especially

Amazon focus on how to make their customers gain the best services, and customer

satisfaction is the best way that Amazon can minimize their risk to the fair level.

The safety rating of Amazon is higher than the other three companies because

Amazon is not a company only focuses on an online customer to customer selling and

buying. Amazon also focuses on the company and product innovations. As Amazon

unstop to innovated their products and services, it caused Amazon has higher safety

rating. This is the difference between Amazon and the other three companies. Even

though Amazon has fair amount of risk, it is not as safe as the companies such as

Wal-Mart and Apple.

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Company Estimated Return (%)

Amazon 6.95

eBay 7.74

Apple 6.62

Wal-Mart 4.44

* Risk Free Rate 1.80

* Market Premium 6.60

Table 4

The estimated return of these four companies is continuous the discussion in the last

paragraph. Until Amazon’s β is lower than eBay but higher than Apple and Wal-Mart, so

it makes sense about the estimated return of Amazon would be lower than eBay but

higher than Apple and Wal-Mart because less risk means lower risk premium and higher

risk will have higher risk premium. Even though Amazon have higher safety rating than

the other three companies, its estimated return is still reasonable rather than the other

companies. However, the safety rating would also make the investors had to predict the

stock price of Amazon. As the result, the volume of the Amazon stock was not stable as

Apple and Wal-Mart. Also, the changes of the stock prices are greater than Apple and

Wal-Mart. On the other hand, the company’s lower safety rating but higher β caused

Amazon has higher returns than Apple and Wal-Mart because higher β means greater

returns.

In conclusion, I feel that Amazon is a fine company to invest. It has higher return

than Apple and Wal-Mart but it also has higher safety rating. After I compare and

contrast with the other three companies, I recommend the Apple stock is the best stock to

invest as the long-term strategy because it has reasonable returns but lowest safety rating.

If I look for short-term strategy investment, I should invest the eBay stock because it has

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highest returns but fair safety rating. Therefore, I believe if we continuous to analysis

more stocks by using our financial knowledge from our class, we can do better in the

stock market. That will also makes us gain the maximum returns from the stock we

bought but minimize the risk.

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Reference

www.amazon.com

http://finance.yahoo.com

www.Nasdaq.com

www.apple.com

www.walmart.com

www.ebay.com

www.Valueline.com