Amazon’s Growing Digital Empire

According to a Forrester report, e-commerce sales in the U.S. are projected to grow 13% this year to $262 billion. e-commerce sales are estimated to grow at a compounded annual growth rate of 9% over the period 2012 through 2017 to be worth $370 billion by 2017. E-commerce may be growing, but Amazon (NASDAQ:AMZN) is counting on other avenues to help continue their own growth story.

Amazon’s Financials

Amazon’s Q1 revenues rose 22% over the year to $16.07 billion, marginally short of the Street’s target of $16.144 billion. EPS fell 36% over the year to $0.51 but was significantly ahead of the market’s projections of $0.41.

For the quarter, media revenues grew 7% over the year to $5.06 billion. Electronics and General Merchandise (EGM) revenues grew 28% to $10.21 billion. By region, revenues from North America grew 26% to $9.39 billion, and international revenues grew 21% to $6.68 billion.

For the current quarter, Amazon projected revenues of $14.5 billion-$16.2 billion, compared with analyst projections of $15.897 billion. Operating income for the quarter is projected to be in the range of a loss of $340 million to a gain of $10 million, compared with $107 million earnings reported a year ago.

Amazon’s Diversifying Digital Portfolio
Amazon is successfully diversifying operations from a pure retail player to expand into other digital offerings. Within media, they continued to expand their library of Prime Instant Video by tying up with A+E Networks, CBS Corporation, FX, PBS Distribution and Scripps Networks Interactive for exclusive access to television series, including “Downton Abbey,” “Justified,” and “Under the Dome.” As part of the agreement, Amazon will also be able to show popular programs from networks such as HGTV, DIY Network, Food Network, Cooking Channel, and The Travel Channel. In addition, like Netflix, they are creating original content through their arm, known as Amazon Studio. Studio already released 14 original programs aimed in the comedy genre and in children’s entertainment.

Within music, Amazon released the Amazon MP3 store for the Safari browser. Now iOS device users will be able to access Amazon’s library of more than 22 million songs. In addition, users will also be able to use their iPads and iPad minis to access Amazon’s Cloud Player to listen to the content stored on their individual cloud accounts.

As part of expansion of their Web Services (AWS), they recently released Amazon Redshift, a petabyte-scale data warehouse service in the cloud that they claim is much faster and more cost efficient. They also released AWS OpsWorks, an application management solution that manages resource provisioning, configuration management, deployment, monitoring, and access control to applications. In view of the need for increasing security on the cloud, they released the AWS CloudHSM, a service that meets compliance requirements by using dedicated Hardware Security Module appliances within the cloud and lets customers generate and manage keys used for data encryption.

As part of their publishing segment expansion, they acquired the social network of book readers, Goodreads, for an estimated $150 million. Founded in 2007, Goodreads is the leading site for readers and book recommendations. At the time of the acquisition, Goodreads had more than 16 million members, with 23 million reviews. Members of the site can record book reviews, publish recommendations for books, share what they are reading with their friends, get recommendations, and even interact with more than 68,000 authors. In addition, they can buy books through e-tailers, including Amazon and Barnes & Noble. Analysts expect that through the acquisition, Amazon will be able to offer a more connected experience to their Kindle users.

One of their bigger steps was to venture into the advertising network. Last year, Amazon released a mobile ad network that transmits advertisements to consumers through apps on both iOS and Android based mobile devices. Amazon is expected to be a big threat to other ad networks as they already have a trove of information about their customers’ shopping choices and histories. Analysts believe that this will be a $1 billion revenue opportunity for Amazon, with margins four to five times higher than their retail margins. eMarketer estimates that digital marketing in the U.S. will grow from $37.3 billion in 2012 to $55.25 billion by 2016. Google remains the leading ad selling company, with a nearly 42% share of the market. But Amazon, with its database, can surely offer stiff competition.

Amazon’s stock is trading at $254.81 with a market capitalization of $115.82 billion. It touched an all-time high of $284.72 earlier this year.