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Amazon and Visa war

There are those brands that are so powerful that they do not need to use their name for recognition. The logo is sufficient. I am sure every marketer’s dream working for a large company.

Nike and Apple are examples of such companies recognizable by just their logos.  Nike was founded in 1964 and Apple 13 years later. In the meantime, Amazon has also managed to join this elite category.

 The company, founded in 1994, has vans driving around in many countries with not even the company logo on them, but the logo of the company’s product: Prime. When an Amazon customer subscribes to Prime, he/she pays a fixed amount per year, but receives a large number of products delivered faster and cheaper. In the Netherlands, Prime costs EUR 35.88 per year, in Spain EUR 19.95 and in America DOLLAR 80.04. When I googled the definition of Prime, the first words coming up were; excellent and original. I think Amazon chose the name well.

 

Does a high turnover automatically mean a high profit?

About 50% of all online purchases by consumers in America go via Amazon. Many people have heard in the news how much Amazon is worth. The same goes for the founder Jeff Bezos himself but also how the share has risen in recent years. So with such a turnover, Amazon must be making a lot of money from their online sales, right? Nothing is less true. Let us therefore take a look at Amazon’s most recent figures.

In the third quarter of this year, Amazon reported the following figures: 110 billion dollars in sales, but profits were 50% lower than in the third quarter of 2020. That means higher costs.

There are five reasons for this:

  1. The supply chain
  2. The shortage of chips
  3. The shortage of staff
  4. Higher staff costs
  5. The cost of transport

In addition to the online service, Amazon has another source of income; Amazon Web Services (AWS). The main source of this revenue is the cloud services they offer. How important is this source of income for Amazon?  Very important!  Because in the last quarter, Amazon reported for the first time, it had received more revenue from AWS than from its online sales, and that all of its profits came from this AWS service. In its outlook for the last quarter of this year, Amazon indicated that they expect the above 5 problems to remain unresolved.

 

The power of Amazon

In the third week of November, some remarkable news came out about Amazon. Strangely enough it was not really picked up much by the media. Amazon had indicated that they no longer want to work together with the credit card company Visa in the United Kingdom. Amazon declares that Visa has raised its prices several times in recent years, without offering any extra in return. As you know, there are relatively few credit card companies in the world, and they are usually very quick to use their power to impose penalties on business customers. These companies often think they have no choice but to pay, if not, they will be cut off and miss a lot of sales.

Amazon was so upset that they offered their regular users £10 and Prime users £20 to link an alternative payment method to their Amazon account before 19th January 2022.

There is a chance that both parties will eventually make a deal. However, for me it is another signal demonstrating just how powerful Amazon is!

 

Amazon One

How about Amazon One? Have you heard of it?  Just google it. It is a new service by Amazon already being used in several places in America. I would love to hear your feedback on this! Let me know.

 

Conclusion

At the time of writing, Amazon’s share price is $3,767.  That’s 15% higher than at the beginning of the year and right around the previous (highest) top in mid-July this year.

In short, an interesting company on many levels such as brand, sales, market share and power. But also a company that suffers a lot from the problems in the economy and generates its profits from services other than its online sales.

It proves once again how important it is for an investor to do his homework properly. Don’t make investment decisions based on how many Prime cars you see driving around on the streets but focus on the most important things, the facts and figures.

Kaspar Huijsman

Kaspar Huijsman is founder and director of Hugo Investing (former BinckBank Spain) and is a passionate investor himself. In his columns he writes about his experiences on the stock market and the economy. If you have a question, mail to kaspar@hugoinvesting.com

The information in this article should not be interpreted as individual investment advice. Although Hugo compiles and maintains these pages from reliable sources, Hugo cannot guarantee that the information is accurate, complete or current. The use of information from this article without prior verification or advice is at your own risk. We recommend that you only invest in products that match your knowledge and experience and do not invest in financial instruments whose risks you do not understand.

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