Amazon just made above the industry average financially during the Global Recession period, although taking a number of out-of-box strategies - including related diversification, horizontal integration etc. (during that crisis). But these efforts resulted in a delayed pay off, with the financial growth picking up since 2014.

1. Report
on
Amazon’s Recession Strategy
Prepared for:
Dr. Syed Golam Maola
Professor
Department of Management
Faculty of Business
University of Dhaka
Prepared by:
SL Name Batch ID Remarks
1 Md. Momtaz Uddin Ahmed 29 3-15-29-025
2 Masrur Rahman Faraz 31 3-15-31-016
Date of Submission: 20/03/2017

2. 1
Company Profile
Amazon.com is an American electronic commerce and cloud computing company. In 2015,
Amazon surpassed Walmart as the most valuable retailer in United States.
Mission Statement:
“We seek to be Earth’s most customer-centric company for four primary customer sets:
consumers, sellers, enterprises, and content creators.”
Products & Services:
Amazon offers a broad range of products. Their product lines available at its website include
several media (books, DVDs, music CDs, videotapes and software), apparel, baby products,
consumer electronics, beauty products, gourmet food, groceries, health and personal-care items,
industrial & scientific supplies, kitchen items, jewelry, watches, lawn and garden items, musical
instruments, sporting goods, tools, automotive items and toys & games.
Amazon has a number of products and services available, including: AmazonFresh, Amazon
Prime, Amazon Web Services, Appstore, Amazon Drive, Echo, Kindle, Fire tablets, Music
Unlimited, Amazon Digital Game Store, Amazon Studios.
Company History
The company was founded in 1994, by Jeff Bezos, former vice-president of D. E. Shaw &
Co., a Wall Street firm.
The company was initially named Cadabra, then Relentless.com. But Bezos was looking for
a name beginning with "A", as it would be preferential if listed alphabetically. Bezos selected the
name Amazon by looking through the dictionary, as he envisioned the place as "exotic and
different". The company went online as Amazon.com in 1995.
After reading a report about the future of the Internet, Bezos created a list of 20 products that
could be marketed online. He narrowed the list to what he felt were the five most promising
products, which included: compact discs, computer hardware, computer software, videos and
books. The company began as an online bookstore.
Amazon issued its initial public offering of stock on May 15, 1997.
Financial Performances during & post-Recession
The Great Recession was economic decline of 19 months (December 2007 - June 2009) due
to a subprime mortgage crisis in the U.S. It was the worst global recession since World War II.
The U.S. unemployment rate had almost reached 9.4% in May 2009. Hundreds of companies
failed in this time.

3. 2
Financial Performance of Amazon during & post-recession can be analyzed as follows:
Profitability Ratios:
1. Profit margin (also referred to as rate of return on sales) is a measure of the % of each
dollar of sales which results in net income. Formula for profit margin is net income/net
sales. Amazon’s profit margin is 3.37% for 2008; 3.21% for 2007. Industry average is
2.72%. Conclusion is Amazon has a higher than industry average profit margin which is a
very positive figure.
2. Return on assets (net income/average (total) assets) is an overall measure of profitability.
Amazon’s return on assets is 8.7% for 2008, 8.8 for 2007; with an industry average of
6.2%. Conclusion is Amazon’s turnover is approximately 25% higher than the industry
average, putting them in a very good profitability position.
3,21
3,37
3,68
3,37
1,31
-0,06
0,37
-0,27
0,56
1,74
-0,5
0
0,5
1
1,5
2
2,5
3
3,5
4
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Net Margin %
8,78 8,72
8,15
7,07
2,86
-0,13
0,75
-0,51
0,99
3,19
-2
0
2
4
6
8
10
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Return on Assets %

4. 3
3. Return on common stockholder’s equity measures profit from the viewpoint of a common
stockholder, and shows how many dollars of net income the company earned for each
dollar invested by the owners (stockholders). Net income/average common stockholder
equity is the formula. The industry average is 16.1%; Amazon’s figure is 33.3% for 2008,
and 58.5% for 2007. Conclusion is even though the return is less for 2008 than for 2007,
Amazon’s return on common stockholder’s equity is double the industry average, making
it very attractive to investors.
4. Operating profit is the firm’s profitability from regular operations, i.e. profits before taxes
and before interest divided by sales.
58,48
33,34
22,75
19,01
8,63
-0,49
3,06
-2,35
4,94
14,52
-10
0
10
20
30
40
50
60
70
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Return on Equity %
4,42 4,39
4,61
4,11
1,79
1,11 1
0,2
2,09
3,08
0
0,5
1
1,5
2
2,5
3
3,5
4
4,5
5
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Operating Margin

5. 4
As we can see from the ratios- the profitability was more than the industry standards, but on
the down spiral till 2014 after which it starts rising.
Liquidity Ratios:
1. The current ratio is current assets/current liabilities. The current ratio for Amazon for
2008 is 1.30, 0.10 less than 2007’s 1.40 ratio. The ratio means that for every dollar of
current liabilities Amazon has, it has $1.40 of current assets. The average current ratio of
the Online Retail Sales Industry is 1.37, so Amazon’s average is in keeping with the
industry trend.
2. The Quick ratio (also known as acid –test ratio) measures Amazon’s immediate short-
term liquidity. It can be measured by dividing the sum of cash + short-term investments +
net receivables by current liabilities. For 2008, the ratio is 0.96, and for 2007, it is 1.03;
the industry average acid-test ratio is 1, so Amazon had kept up with the industry trend.
1,39
1,3 1,33 1,33
1,17 1,12 1,07 1,12 1,08 1,04
0
0,2
0,4
0,6
0,8
1
1,2
1,4
1,6
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Current Ratio
1,03
0,96 1 1
0,82 0,78 0,75
0,82
0,77 0,78
0
0,2
0,4
0,6
0,8
1
1,2
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Quick Ratio

6. 5
Based on the ratios, it can be said that Amazon has liquidity on a par with its industry.
Leverage Ratios:
1. Debt to total assets ratio measures the percentage of total assets creditors provide and is
determined by the formula total debt/total assets. A company’s degree of leverage is
indicated by this result, as well as an indication of its ability to undergo some degree of
loss without hurting its creditors. The lower this figure, the better, because a high number
may mean the company is at risk of defaulting on its maturing debts. Amazon’s debts to
total assets ratio improved in 2008 by dropping to .68, from .82 in 2007. The conclusion
here is even though the Amazon ratio us higher than the industry average of .55, it is
trending in the right direction and does not pose a significant concern to investors.
2. Debt-to-equity is borrowed funds versus the funds provided by shareholders (Total
debt/Total shareholders’ equity).
0,82
0,68
0,55
0
0,1
0,2
0,3
0,4
0,5
0,6
0,7
0,8
0,9
2007 2008 Industry Avg
Debt/Assets
1,12
0,2
0,05 0,09
0,18
0,47
0,53
1,16
1,06
0,79
0
0,2
0,4
0,6
0,8
1
1,2
1,4
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Debt/Equity

7. 6
Activity Ratios
1. Inventory turnover determines the number of times inventory is sold on average during
the accounting period. This formula is cost of goods sold/average inventory. Amazon has
an inventory turnover of 11.5 for 2008, and 11.1 for 2007, just slightly higher than the
average industry trend of 10.8.
2. Asset turnover measures efficiency in using assets to generate sales and is calculated as
net sales/average (total) assets, shows dollars of sales produced by each dollar invested in
assets. Amazon’s 2008 asset turnover was 2.59; its 2007 asset turnover was 2.74, and the
industry average was 2.3. Conclusion is Amazon’s turnover is very much in line with the
average.
11,06 11,46
10,63
9,89
9,1
8,34 8,06 7,99 7,73 8,13
0
2
4
6
8
10
12
14
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Inventory Turnover
2,74
2,59
2,22
2,1 2,18 2,11 2,05
1,88 1,78 1,83
0
0,5
1
1,5
2
2,5
3
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Asset Turnover (Average)

8. 7
3. Receivables turnover represents the number of times on average Amazon collects
receivables during the accounting period. Measured as net credit sales/average net
receivables (net credit sales = net sales – cash sakes, if company has cash sales.), the
average Accounts Receivable Turnover for the Online Retail Sales Industry is 29.6 times.
Amazon’s receivables turnover is 14.6 days (365/25.02) for 2008, and 13.6 days
(365/26.88) for 2007, making it slightly less than half the industry average. The
conclusion drawn from receivables turnover is Amazon collects funds more rapidly than
the industry trend, which improves its short-term liquidity.
Growth Ratio:
1. Dividend yield on common stock is a measure of return to common stockholders in the
form of dividends (Annual dividend per share/Current market price per share).
26,88
25,02
27,01 26,57
23,13
20,59
18,31
17,15 17,78 18,42
0
5
10
15
20
25
30
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Receivables Turnover

9. 8
2. The price-earnings ratio is market price per share of stock/earnings per share. It reflects
an investor’s assessment of a company’s future earnings. Amazon’s P-E ratio is 101.32
for 2008, 122.61 for 2007. The industry average is 78. Conclusion is Amazon’s P-E ratio,
as a strong indicator of investor enthusiasm, is very favorable.
Strategies during Recession
R&D:
Amazon has spent almost $4 billion on R&D in the first decade after the millennium, while
eBay has spent about $2.7 billion. This research and development has resulted in new products,
services and innovative strategies as follows:
1. Kindle: Kindle, an electronic book reader, had become the best-selling item by unit sales
and sales volumes through Amazon's recession-friendly strategy "Cheap Now, Pay
Later". Low-price Kindles are made possible by turning people into purchasers of other
products.
2. Snapshot Widget: Amazon developers worked on an Iphone app that can tell product
prices of physical shops by snapshots taken of them. This service is particularly useful
when the people, going through an economic crisis, are more and more wary.
3. Amazon Flexible Payments Service (Amazon FPS): Amazon FPS is the first payments
service designed from the ground up specifically for developers.
4. Amazon DevPay: A simple-to-use billing and account management service that makes it
very easy for developers to get paid for applications they build on Amazon Web Services.
This particularly works when the people are more and more inclining towards stay-home
freelance online jobs in a time or high unemployment.
5. Free Shipping: Amazon decided to stop charging shipping costs for deliveries.
122,61
101,32
78
0
20
40
60
80
100
120
140
2007 2008 Industry Avg
Price-Earning Ratio

10. 9
Acquisition:
Amazon goes by this idea - "If you can’t beat ’em, it’s best to acquire a company…"
During the recession period, Amazon acquired the leading iPhone eBook Reader Stanza,
rival to Kindle. They also acquired dpreview.com, Brilliance Audio, Audible.com, Fabric.com,
Box Office Mojo, AbeBooks, Shelfari, Reflexive Entertainment, Zappos, SnapTell
Economies of Scale:
Amazon enjoys economies of scale far beyond their online competitors, and they use that
power to offer hyper-aggressive prices and fast, cheap shipping. Amazon is larger than the next
dozen largest e-retailers combined. They aggressively re-invest the benefits of this scale into
even lower prices and faster, cheaper shipping that in turn lead to growth and further scale
advantages.
Amazon’s sells mainly media, electronics, home and garden, and toys. The best-selling
products are essentially commodities, identified by a standardized Universal Product Code.
Amazon also challenges brick and mortar shops due to large cost advantages and
commitment to having the lowest prices anywhere.

11. 10
International Sales:
Much of the growth was due to international sales, which now account for 48% of the
company's income. The volume of international Kindle sales has been so high that the company
announced that it was cutting the cost from $279 before tax to $259.
Reputation:
Over the 2000–2010 decade, Amazon has developed a customer base of around 30 million
people. The domain amazon.com attracted at least 615 million visitors annually by 2008.
Amazon attracts over 130 million customers to its US website per month by the start of 2016.
Amazon has the best corporate reputation among the 100 most visible companies in the
United States, just ahead of Apple and Google, released by the Harris Poll today. It’s the eighth
consecutive year that Amazon has ranked in the top 10.
Subsidiaries:
Amazon has a number of Subsidiaries, like - Amazon Maritime, Audible.com, Brilliance
Audio, ComiXology, Goodreads, Shelfari, Beijing Century Joyo Courier Services.
Conclusion
It can be concluded that though Amazon took a number of strategies, financially they mostly
made just above the industry average during the recession period – except for profitability. Their
financial rise had to wait till 2014.
From Amazon, a Bangladeshi manager or company can learn a number of lessons, like:
1. Investing in R&D
2. Not going too defensive during crisis
3. Diversification in products & services
4. Acquiring emerging rivals
5. Standardizing commodity-like products for economies of scale
6. Going for "buy cheap spend later" sales strategies
7. Going online
8. Going international
9. Having a number of subsidiaries
10. Competing with alternate service providers, in addition to industry competitors

12. 11
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