Amazon share prices rose again during the week after a massive 23% increase in overall sales. However, some questions have been raised about the extent of Amazon’s activities which has ventured far from its main focus of online retailing. The company is now involved in cloud computing, movie streaming and even movie making!
There is a limit to how fast and how far the profits of such a company can rise, and some fear the consequences of Amazon profits leveling off, as they must eventually do. Some analysts fear that the firm might ultimately be regarded as a conglomerate, where stock becomes worth less than the total value of its individual parts.
Even though its various activities appear to have become unrelated, Amazon has not reached that situation yet. The main reason for this is that it is still in the retail business: it retails cloud computing and movie streaming along with more traditional goods.
Amazon’s income from Prime membership and media subscriptions has increased by 49% to $1.9 billion in the first quarter of this year. The company claims that Prime provides an incentive for members to spend increasing amounts of money on Amazon and purchase more frequently due to free delivery, streamed movies and other benefits of membership. Its Hollywood TV studio creates videos that increase registrations for the Prime service.
Historically, the revenue of conglomerates tends to grow at a lower rate than that of companies with a narrower focus on business activities. Conglomerate stocks tend to be valued lower due to their more complex structure and potential management issues connected with a diverse range of business types. The company, however, claims that its business pursuits are focused on the long term rather than on short-term gains, and Amazon share prices remain unaffected.
Amazon has not yet been classed as a conglomerate, partially due to the entrepreneurial genius of founder Jeff Bezos. Although it is generally regarded that the way Amazon is going is historically challenging and compromising, and often spells longer term trouble for businesses, the Bezos effect is so far keeping the wolves from the door and investors quiet – for now. Amazon share prices continue to rise and conglomerate fears remain allayed meantime – but for how much longer?
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