Amazon’s Brilliant Long Term Strategy for the International Market

International market

Amazon has just delivered a massive first quarter earnings report, which has sent the stock up to an unprecedented new high. The revenue has gone up by 43%, going up to $51 billion for the quarter. The net income was as high as $1.6 billion, up from $734 million for this period last year.

Amazon stock is now worth $1,572 and the company has a market cap of $734. This is a stunning new high for a company that began its life as a website that sold books.

The increase in revenue can be attributed to many factors. Amazon Prime subscription, for example, has been a huge success. The company already has 100 million paid Prime subscribers globally. In the U.S., the company has decided to increase Prime subscription prices from $99 to $119 per year starting from May 11 this year.

Amazon CFO Brian Olsavsky explained, “We always evaluate the price of Prime. There’s all kinds of new features we’ve continually added to the Prime program…it’s a reflection of the cost value of the program.”

Another major factor behind Amazon’s impressive revenue growth has been Amazon Web Services. This cloud-based service has procured total revenue of $5.4 billion for the company, up by 49% since a year ago. Amazon Web Services provides cloud computing, database and storage services for web developers, online companies, academic institutions and governments.

Speaking about AWS, Amazon CEO Jeff Bezos said, “AWS had the unusual advantage of a seven-year head start before facing like-minded competition, and the team has never slowed down.”

Amazon’s international sales were up by 34%. However, the fact is Amazon is losing money over its international business, to up to $622 million this quarter.

Amazon seems to be more interested in growing its international market than making money out of it. In fact, it is strange that even as Amazon’s profitability has increased across the board, internationally they have been losing more and more money every year.

There is, of course, a grand strategy behind it. Bezos is basically playing 3D chess here with a very long-term view.

Amazon competes with many local champions abroad, such as FlipKart and Snapdeal in India, Rakuten in Japan, Alibaba in China and MercadoLibre in Latin America.

These companies already have a loyal customer base which Amazon wants to attract. Amazon is trying to do that by outspending the competition, even at a loss.  Already these companies are in a lot of pressure because of Amazon and have been outspending to keep up themselves, but the question is for how long.

Amazon has limitless cash reserves, and the same can be said about Alibaba and Rakuten. But Flipkart, Snapdeal, MercadoLibre and other local champions will run out of cash and will be forced to sell their business to Amazon or bow out of the race.

That seems to be the strategy Jeff Bezos has in mind. It’s brutal and it is all too apparent, but like a slow moving train crash, nobody can do anything about it!

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