Amazon: Manic Obsession over the Customer

Amazon: Manic Obsession over the Customer

04 August 2023

Key Indicators

Index / Fund / Rate Start of Year Last week This Week % change YTD
Lunar BCI WW Flexible Fund 141.43 169.67 173.30 22.53%
JSE ALSI 73 049 78 507 76 961 5.36%
NASDAQ Composite 10 467 14 033 13 909 32.89%
S&P 500 3 840 14 137 4 478 16.62%
Prime Lending Rate 10,50% 11.75% 11.75% 11.90%
USD/ZAR 16,98 17.57 18.46 8.72%
EUR/ZAR 18,44 19.36 20.31 10.14%
Brent Crude ($’barrel) 85,95 84.87 86.10 0.17%

Source: Iress

Weekly Stocktake with Danyaal

Amazon: Manic Obsession over the Customer

Many companies profess a commitment to customer-centricity. They seek to develop products adored by customers and use phrases such as “the customer is always right.” However, few can rival Amazon in this regard, who consistently from its inception has an obsession with customer experience. Amazon’s businesses include a global E-commerce enterprise, AWS (their cloud infrastructure division), as well as its media business Prime and MGM Studios, amongst others. They continuously expand their influence across other business domains. At the core of Amazon’s business lies the principle: “customer obsession rather than competitor focus.”

Amazon Prime, a membership program tailored to benefit Amazon customers, stands as an example of Amazon’s dedication to enhancing the customer experience. Amazon Prime members pay $139 annually, entitling them to two-day shipping for eligible items, access to Amazon’s Prime Video streaming service, early access to e-commerce deals, and other perks.

While Amazon diligently seeks to refine its offerings, some investors contend that the company’s intense focus on customer experience may, in some instances, overshadow the pursuit of profitability across its business divisions—particularly evident in Amazon’s ongoing efforts to reduce delivery times. Notably, some investment analysts assert that the cost incurred may not justify the potential gains. Nevertheless, Amazon remain steadfast in their belief that, over the long term (another core principle of Amazon’s), “customer obsession” will build shareholder value. In fact, Amazon has noted an increase in the number of items clients purchase as they deliver faster.

Where has customer obsession taken Amazon. Last week, Amazon released their Q2 2023 results. For the quarter, Amazon reported net sales of $134 billion, marking an 11% increase compared to the same quarter last year. Amazon operates with relatively narrow operating margins. Changes in revenues or costs can lead to notable shifts in their operating margin. Amazon managed to lower the growth rate of their operating costs compared to their revenue. In Q2 2023, Amazon’s operating income reached $7.7 billion, up 133% compared to the same quarter in the previous year.

Amazon is held in the Lunar BCI Worldwide Flexible Fund. It is also held by the Lunar Capital Offshore Portfolio Clients.

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