Performance of Amazon during the Corona-Crisis and Dot-com Bubble. Corporate Strategy, Liquidity, Revenue and Profit

Term Paper, 2020

16 Pages, Grade: 1,3



1 Introduction

2 Description and timeline of, Inc.

3 Comparison of Amazon’s performance during both crises
3.1 Amazon’s performance during the dot com era
3.1.1 Corporate strategy
3.1.2 Liquidity, revenue and profit
3.1.3 AMZN Stock
3.1.4 Employees and employee compensation
3.2 Amazon’s performance during the corona crisis
3.2.1 Corporate strategy
3.2.2 Liquidity, revenue and profit
3.2.3 AMZN Stock
3.2.4 Employees and employee compensation

4 Conclusion

List of Figures

1 own illustration: Stock prices - dot com bubble

2 own illustration: Stock prices - corona crisis

1 Introduction

Looking at the global economy, it is clear to see that financial crises are occurring from time to time, challenging companies in many ways to innovate and find solutions and get through financial instable times with minimal losses. There are also different types of crises which are weakening especially certain economic sectors.

The internet crisis from the late 1990s and early 2000s - also called dot com bubble - for example was not really a challenge to physical businesses, but to internet companies. The problem was the rate at which the internet was growing at that time. Investors saw much potential in these companies and started to invest in them - although there was no profit made yet - which led to an overvaluation of companies whose websites ended with a ‘.com’. After investors realized, that the risk is too high to invest in companies with zero or even negative income, the shares have been sold quickly and the stock prices plummeted. Most internet companies went bankrupt and only a few were able to keep themselves in the market.

In contrast, the global corona-crisis that spread globally and really started to influence economic markets in 2020 affects mostly physical stores and the travel industry, providing internet companies with a relative corporate advantage. In order to minimize the risk of infection, many governments enacted laws that regulated the amount of contact between people. Exit restrictions and other rules and restrictions mainly affect businesses like restaurants, hair salons, but also shops and other businesses where physical contact exists or is necessary. In this case internet companies have an advantage because most people who stay at home are surfing the web, buying goods online or trying to entertain themselves in the internet.

Considering these two crises which are very different, or almost contradictory to each other, it seems to be interesting to compare the performance of an internet company, which began as one of these dot com startups during the internet crisis, but is still innovative and successful to this day, even during the corona crisis. So, for this purpose, this paper will examine the corporate success of, Inc. in times of the dot com bubble compared to its performance in times of the corona-crisis. The comparison of the company during these financial crises will include corporate strategy, the company’s liquidity, revenue and profit, stock prices and the performance on the stock market, and the number of employees and their compensation as indicators for its financial situation and the company’s success.

2 Description and timeline of, Inc.

Jeff Bezos is the founder of, Inc. On July 5th in 1995, went online as the “Earth’s biggest bookstore”, with its first office located in Seattle, Washington [Sti] (Stig Leschly et al., 2003, p.3). Amazon’s IPO was on May 15th, 1997 at 18 USD per share. The company has been evaluated of 300 million USD of worth at its IPO [Lyd19] (Lydia DePillis, 2019). In the first letter that Jeff Bezos wrote to his shareholders, he explained that the company will focus on investments that serve the purpose of gaining market leadership advantages. The primary focus at that time was expansion [Amab] (, Inc., 1998b, p.4). A second distribution center opened on November 18th, 1997 in New Castle, Delaware. On September 28th, 1999, Amazon was able to patent its innovative “1-Click” technology, which enables the customer to buy products by only clicking on the buy-button once. Two days later the company makes it possible for other, smaller merchants to sell their products on a third-party seller website called ‘zShops’ which is run by Amazon. Today this third-party seller website is known as the ‘Amazon marketplace’. A new shipping offer has been introduced on in January 2002, which grants free shipping for certain orders of 99 USD minimum [Amag] (, Inc., 2002, p.25). All of the following information is based on the article written by Lydia DePillis. On June 10th, 2003, Amazon launches ‘Amazon Web Services’ (AWS), a cloud hosting platform which is fifteen years later one of the main sources of income for Amazon and dominating the modern cloud hosting market. Amazon expanded into the Chinese market on August 19th, 2004, with the purchase of the largest books and electronics seller in China: One of Amazon’s most valuable assets today which was producing costs at first, the loyalty program called “Amazon Prime”, has been introduced on February 2nd, 2005. The building of the Amazon headquarters which is located in Seattle has been announced on December 21st, 2007. Amazon bought the audiobook company Audible on January 31st, 2008. Audible already had an offer of 80.000 audiobooks in the US and Europe at the time of purchase. In 2014, the Amazon Fire Phone has been introduced but instead of increasing profits, it produced costs. The production of the smartphone was shut down one year later. On February 2nd in 2015, the company that started with selling books online opens its first physical bookstore in Seattle. On June 16th, 2017, one of the most important acquisitions for Amazon took place, the acquisition of the biggest organic supermarket chain in the US, Whole Foods Markets. On September 4th in 2018, Amazon briefly was able to reach a market capitalization of one trillion USD. Until now, Apple is the only other company that was worth this much. Shortly after breaking this record the minimum wage within the company had been increased to 15 USD per hour. Amazon had its 25th anniversary on July 5th in 2019. Up until this date, Amazon grew into a business with 647,500 employees which occupies 288.4 million square feet of real estate and it is responsible for nearly half of all online purchases in the United States [Lyd19] (Lydia DePillis, 2019).

3 Comparison of Amazon’s performance during both crises

3.1 Amazon’s performance during the dot com era

3.1.1 Corporate strategy

In a letter to his shareholders from 1997, Jeff Bezos stated the plans he had with his company It reads that the goal at that time was to strengthen the market position Amazon had at that moment, whilst extending the company’s operations into other markets in order to build a strong and long-lasting brand, even in well-known and traditional economic markets. This process would be cost-intensive, making shareholder value an essential factor for the company’s growth. Investments would be based on the goal of creating long-term market leadership instead of increasing short-term profits. In order to reach that goal, rather risky and aggressive investment decisions were planned for the future. Cash-flow-maximization and cost-reduction are principles that must be maintained to improve the chances of profitability in the long-term. Especially in these early years of, as the business had to deal with net losses. But in the beginning phase, scaling the company would always be the highest priority even if it disrupted the principles mentioned above. The key principle that the company is based on is customer obsession. The purpose of Bezos’ company is to provide the best customer service in the e-commerce market. This is done by constantly improving the website for the comfort of the customer with for example 1-click shopping, recommendation features and other functions, besides from decreasing prices for the products that are listed on the website. The delivery time should be improved by opening new distribution centers in different locations, so that the products can be stored closer to the customers. An increase in the number of stored items should improve the availability of products [Amab][CNB99] (, Inc., 1998b; CNBC, 1999). To gain new customers, new products of different categories have been added from time to time to the website. More important than gaining new customers is building customer loyalty and increasing the number of repeat purchases [Zan] (Zana Majed Sadq et al., 2018). Jeff Bezos started with the goal of creating earth’s biggest bookstore but this goal changed overtime as he noticed that people would like to buy more than just books from his website. Now the objective is to create an internet platform where consumers could browse for all kinds of products and buy them, so that no other website is needed in order to increase the comfort for the customer when it comes to online shopping [Sti] [Zan] (Stig Leschly et al., 2003; Zana Majed Sadq et al., 2018).

3.1.2 Liquidity, revenue and profit

Liquidity was able to significantly expand their business in several ways, despite of being in an economic bubble. This was possible because of the accounting which they applied, or more concisely the cash conversion cycle, as they knew how to use it to their advantage. The cash conversion cycle should be held as low as possible. An optimal scenario would be a cash conversion cycle that is close to zero. The best-case scenario would be a cycle of the value zero or a negative cycle, which means that you do not have to pay anything for the products you sell because you receive the money of these sold items in advance. This was the case with this company. When the dot com bubble burst, there was no need for raising capital for business operations, because this cycle has been improved to the point that it did not only ensure permanent liquidity, but it also provided the business with capital which was necessary for the planned expansion [Mis18] [The18] (Misamore, 2018; The Economic Club of Washington, D.C., 2018). Amazon’s main source of liquidity is the company’s cash, cash equivalents and marketable securities [Amag] (, Inc., 2002, p.35). However, most of the time the cash that was available was not enough for the company’s investments. In 2002, Amazon completed its first cash-flow-positive year. It took the company seven years for that because, although the cash flow increased significantly every year, it kept investing more than its available cash in order to expand its business [Sti] (Stig Leschly et al. 2003). From December 31st, 1996, to the same date in 1997 for example, the amount of cash in the business increased from 6.2 million USD to 109.8 million USD [Amaa] (, Inc., 1998a, p.26). The year 1998 ended with less cash and cash equivalents than the year before with 71.5 million USD. This changed in 1999 when the companys cash balance reached up to 133.3 million USD on December 31st. The internet crisis reached its peak in the year 2000, but the effects did not have a serious impact on the cash flow as the company ended this year with a cash and cash equivalents balance of 822.4 million USD on December 31st, 2000. In fact, it increased significantly in this year as compared to the previous year. The current ratio in the peak year of the internet bubble was 1.39, which means that the company had 1.39 USD in cash in order to cover 1 USD of liabilities [Amaf] (, Inc., 2001, p.19). One year later, on December 31st, 2001, the company’s cash and cash equivalents balance were 544 million USD. The current ratio was 1.31 in that year, which shows mathematically that the company’s liquidity was sufficient to meet its short-term liabilities. In 2002, the last year of the internet crisis, the companys free cash flow, so the remaining cash after all the company’s expenditures, increased to a positive of 135 million USD, coming from a negative of 170 million USD. The cash and cash equivalents balance in that year amounted to 738.2 million USD and the current ratio increased to 1.51 [Amah] (, Inc., 2003, pp. 3,21). The reason for the company’s focus on increasing its cash flow is because of the assumption that the cash flow of a company is an important indicator for the company’s stock price development over the long term and because of the company’s plans to expand [Amag] (, Inc., 2002, p.3).

Revenue An indicator that shows how fast the company grows is its revenue, which is affected by the seasonality of internet usage as well as the seasonality of the products that are sold. In 1997, Amazon already experienced large revenue growth-rates. Net sales grew from 1995, when Amazon’s business operations began, to 1996 by 2,981%. The transition from 1996 to 1997 shows an increase of 838%, which leaves the company with sales of 148 million USD by the end of 1997 [Amaa] (, Inc., 1998a, p.16). From 1997 to 1998, the growth rate of the company’s sales were 313%, leaving the company with 610 million USD in 1998 and one year later it grew by 169% to 1.64 billion USD in 1999. Sales growth during 1999 can be explained by an increase of unit sales and product lines which have been newly introduced in this year [Amac] [Amae] (, Inc., 1999a, p. 16; 2000, p.2). Even in the year of the bubble burst, sales grew to 2.76 billion USD by the end of 2000, which is a 68% increase compared to the year before. In the year 2000, revenues increased because of more units sold in Amazon’s existing stores. Even in the year of the bubble burst, sales grew to 2.76 billion USD by the end of 2000, which is a 68% increase compared to the year before. In the year 2000, revenues increased because of more units sold in Amazon’s existing stores [Amaf] (, Inc., 2001, pp. 20-21). After 2000, this growth in revenue continues but not as fast as in the previous years. In 2001, one year after the internet crisis reached its peak, sales reached up to 3.12 billion USD which was an increase of 13% from the year before. The annual growth rate of sales decreased because of several reasons like for example general unfavorable economic conditions corresponding to the dot com boom and the offer of new and used products which have been newly introduced on Amazon Marketplace [Amag] (, Inc., 2002, pp. 22-23). In 2002, net sales again increased only slightly compared to the previous years to 3.93 billion USD, so by 26% [Amah] (, Inc., 2003, p.3).

Concerning international business, net sales increased significantly, too. In 1998, international net sales accumulated to 22 million USD which one year later increased to 168 million USD and then to 381 million USD in 2000. In the year of the bubble burst, an annual growth rate in revenue of 127% can be reported outside of the United States. These increases in international sales are mainly achieved by Amazons websites in the U.K., Germany, France, and Japan. The last two websites have been introduced after the first half of 2000 [Amaf] (, Inc., 2001, pp.20-21). In 2001, about 29% of all sales from this year, so 661 million USD, have been made outside of the U.S. This represents an annual growth rate of 74% in international sales. International sales increased again in 2002, so that 35% of total net sales in that year, which are 1.16 billion USD, were achieved [Amah] (, Inc., 2003, 24-26). The German and the British stores are Amazon’s biggest subsidiaries in the international market. The revenues of foreign currencies are translated into USD at average conversion rates that are determined over the whole year. The results can be negatively influenced by the exchange rates of the used currencies [Amag] (, Inc., 2002, pp.22-23).

Profit did not make any real profit in its first couple of years in business. This was not because of poor performance or the effects of the dot com bubble, but because the company invested more than every dollar that has been made into its expansion so that it even ended up with net losses every quarter until the fourth quarter of 2001, when the first net income of 5 million USD was achieved [Amag] (, Inc., 2002, p.2). So as the companys gross profit grew every year, so did the expenses that fueled the Companys growth, too. Up until the year of its IPO, the company generated net losses of 33.6 million USD in total [Amaa] (, Inc., 1998a, p.5). continued to make losses so that it ended up with 2.3 billion USD of accumulated net losses at the end of 2000. One year later, the accumulated deficit increased to 2.86 billion USD [Amaf] (, Inc., 2001, p.5). In 2002, the last year of the internet crisis, the company still made net losses. The company had an accumulated deficit of 3 billion USD. Amazon accumulated these losses although its gross profit grew from 291 million USD in 1999 to 656 million USD in 2000, so by 126%. In 2001, gross profit increased by 22% to 799 million USD. At the end of the dot com crisis, gross profits were 993 million USD, which is an annual increase of 24%.

Gross profit resulting from international transactions increased from 36 million USD in 1999 to 77 million USD in 2000 (a 188% increase), then to 141 million USD in 2001 (an 82% increase). This growth rate reduced to 77% as the company made a gross profit of 249 million USD outside of the U.S. in 2002. These increases in gross profit are caused by an increase in the number of units sold. Another main improvement that led to this growth was a better management of inventory and an improved procurement of products [Amah] (, Inc., 2003, pp.6,26-27).

3.1.3 AMZN Stock finished an initial public offering of its common stock at 18 USD on May 15th, 1997. The company’s stock is listed on the NASDAQ market with the symbol ’AMZN’. Amazon’s market value at its IPO was 49.1 million USD [Amaa] (, Inc., 1998a). Its market capitalization after its first day on the stock market was 438 million USD. Its market capitalization after its first day on the stock market was 438 million USD [Chr] (Christopher Noe, 2019). In its first year on the stock market, Amazon’s stock price ranged from 15.75 USD to 65.50 USD [Amag] (, Inc., 2002). The weighted average exercise price of these shares was 8.949 USD. At the end of the first quarter of 1998 the company had 304 stockholders who bought the AMZN common stock [Amaa] (, Inc., 1998a). The number of stockholders increased significantly to 3,981 in the beginning of the peak year of the dot com bubble. At the end of the dot com crisis, 4,229 stockholders of the common stock have been counted on January 27th, 2003 [Amah] (, Inc., 2003). The company effected a 2-for-1 stock split on June 1st, 1998, a 3-for-1 stock split on January 4th, 1999, and another 2-for-1 stock split on September 1st, 1999 in the form of stock dividends which have not been paid out. After these stock splits, basic and diluted loss per share were 2.20 USD per share in 1999. In the following year it was 4.02 USD and one year later in 2001 it was 1.56 USD [Amae] (, Inc., 2000). In the final year of the stock bubble, the loss per share reduced to 0.39 USD [Amah] (, Inc., 2003). The effects of the internet crisis could be seen well in the development of the company’s stock. The investors’ euphoria during these times made the AMZN stock price rise to a max. price of 113 USD on December 9th, 1999. After this date it started to decrease quickly and with a volatility of 89.6% [Amag] (, Inc., 2002). From June 21st to June 23rd, 2000, a sharp decline can be observed as the stock price fell by about 13 USD within one day. After June 23rd, 2000, the companys stock prices kept decreasing until a price of 6.10 USD was reached on October 1st, 2001. In relation to the development of the AMZN stock, it can be said that October 1st, 2001 was Amazon’s lowest performance of its stock price during the dot com era. After this day, in general the company’s stock prices started to increase again but with a high volatility of 98% [Amag] [Yah20] (, Inc., 2002; Yahoolfinance, 2020). Up until 2002, no dividends have been paid out yet because all earnings are used to finance the company’s expansion [Amag] (, Inc., 2002). During the development of the internet bubble, Amazon’s cash flow system was a one of multiple reasons for many investors to keep investing in the company [Sti] (Stig Leschly et al., 2003). As the stock prices improved again, a market capitalization of 7.21 billion USD was achieved on January 1st, 2003 [?] (, 2020). Here is a visualization of the company’s stock performance during the dot com crisis. The peak and the lowest price of the stock price are highlighted with a red circle.

Abbildung in dieser Leseprobe nicht enthalten

Figure 1: own illustration: Stock prices - dot com bubble 3.1.4 Employees and employee compensation


Excerpt out of 16 pages


Performance of Amazon during the Corona-Crisis and Dot-com Bubble. Corporate Strategy, Liquidity, Revenue and Profit
University of Applied Sciences Augsburg
Catalog Number
ISBN (eBook)
ISBN (Book)
dot com bubble, corona crisis, amazon stocks, financial crisis, amazons performance, jeff bezos, amazon, finance, amazon performance, financial performance, amazon 2020, internet crisis, stock market
Quote paper
Jagnoor Bhalla (Author), 2020, Performance of Amazon during the Corona-Crisis and Dot-com Bubble. Corporate Strategy, Liquidity, Revenue and Profit, Munich, GRIN Verlag,


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