Amazon.com, Inc. (AMZN): Will The Company’s Margins Improve?

Amazon.com, Inc. (NASDAQ:AMZN)‘s market share focus is no secret, and the company continues to gain traction in numerous key areas. However, as the company is in a major investment phase, the bottom line is currently in the red. And many investors have portrayed their dissatisfaction of Amazon.com, Inc. (NASDAQ:AMZN) not showing any signs of profit, during this investment cycle of the company. Most importantly, Amazon.com, Inc. (NASDAQ:AMZN) has positioned itself very well to earn out-sized returns from its numerous business lines in the long run.

In 2012, Amazon.com, Inc. (NASDAQ:AMZN)’s growth story was well in place as the company’s revenues grew 27% from 2011 and ended with $61.1 billion in topline sales. Amazon.com, Inc. (NASDAQ:AMZN) has stated that its investment phase is ongoing, which has translated into lower operating and net income margins recently.

However, Amazon.com, Inc. (NASDAQ:AMZN)’s gross profit margins have been moving towards the right direction. Amazon’s gross margin back in 2010 stood at 22.3%, which went up to 24.8% at the end of 2012. Amazon’s revenues from North America and both its International operations are growing at a healthy pace of more than 20% each.

One of the major benefits of Amazon’s Prime Shipping service has been the company’s net shipping costs as a percentage of sales have been going down. In the holiday quarter of 2011, net shipping costs as a percentage of sales stood at 5.4%, which declined to 4.5% in Q4 2012.

This is a key metric for Amazon because of its huge expenditure on shipping and fulfilling customer orders. Amazon has been investing heavily in building fulfillment centers near major metropolitan cities, and trying to be closer to its customers. Optimized placement of fulfillment centers will aid in faster shipping, which in turn will delight the customer, and pave the way for incremental customer purchases on Amazon’s platform.

Not only will Amazon save money from lower shipping costs for its own retail operations, but the company stands to make more money as more and more third party sellers send their goods to be shipped by Amazon through the Fulfillment by Amazon (FBA) service. Amazon’s third party (3P) business in which Amazon earns a fee has been growing at ~40%, which paves the way for increased higher margin sales. As Amazon’s size increases, it enhances the company’s case to negotiate more favorable terms with sellers and vendors in its ecosystem.

Amazon’s Kindle tablet stands behind only Apple Inc. (NASDAQ:AAPL) when it comes to gaining the most consumer acceptance. In its most recent quarter, Apple Inc. (NASDAQ:AAPL) shipped ~19.5 million iPad units, which represents a 65% increase from a year ago. As a result it’s pretty evident that consumers are adopting these handy mobile devices.