Amazon.com and the Search for Reinvigorated Growth in 2014

Amazon’s AMZN shares fell a staggering 11% after its fourth quarter results showed that the company failed to meet analyst expectations and grew slower than hoped. Analysts had forecasted as much as 74 cents per share in revenue for the quarter ending on December 31^st of last year. Amazon, however, only saw 51 cents a share. This is, of course, a dramatic gain on its previous year earnings of 21 cents per share but, nevertheless, not as high as had been expected. But 2014 is a new year and the company has many new plans in the works and a lot of room to grow.

Where Amazon is growing in 2014

The company has a lot in store for the future. And while its primary goal has always been increased sales over increased profits, the pressure felt in the fourth quarter of 2013 has forced Amazon to find ways of increasing revenue from its existing sales.

One way it might do this is through increasing the subscription fee for its primer service by $20 per year. While some criticize this move as potentially decreasing the number of new subscribers, the move could still be profitable in spite of the decline. It is estimated that subscriptions increased by 25% to 30% last year and even if the spike in cost results in a decrease of 10% to 15% in number of new subscribers, Amazon could still see as much as $600 million in additional revenue growth from the price increase alone.

The company has also seen a lot of potential in its recent expansion into groceries with its new AmazonFresh. The service, which is only offered in three west coast cities at the moment, could expand into as many as 20 new urban markets over the coming year. Although competition in the e-groceries market is stiffening, Amazon still holds a substantial percentage of customers who buy their groceries online.

There are still some kinks to work out in the business plan and an uphill battle against the public’s preference to buy their products at a physical store. Nevertheless, there is a high potential for increased sales in this emerging market and Amazon is currently poised at the forefront.

Amazon’s Kindle e-readers and tablets represent another existing sector for growth. The company broke into this market with the initial strategy that it would sell the devices at or below cost with the hope of securing long term profit in the sales of media for the devices. In the past, this strategy has had less than desirable results.

However, in the past two consecutive quarters of 2013, the plan finally seemed to take effect as media sales grew substantially. In the fourth quarter, for example, Amazon’s media sales in the United States were up 21% from the same period just one year ago. The company hadn’t seen growth rates like that since before the Kindle Fire came out on the market.

Other potential boosts for Amazon

In addition to its current products and services, Amazon could see growth as a result of forming new partnerships and making new deals to expand further into other profitable markets. For example, there are some partially substantiated rumors that Amazon plans to expand more aggressively into the video game market by developing its own gaming system based on Google’s GOOG Android operating system. The claims that such plans are in the works are supported by the recent news that Amazon has acquired the California-based videogame developer, Double Helix.

A potentially neglected earnings source is the revenue generated from private sellers and trading done through the Amazon marketplace. Since many private sellers are small companies or individuals with little capital to invest in expanding their business, the profit Amazon sees from this area has been somewhat limited. However, there is a new source of financial backing for these private sellers that has found surprising success in the three short years it has been operating.

Kabbage  provides much needed cash injections to small and growing companies around the world. Its customer base is primarily e-commerce businesses, although, it has opened its services up to brick and mortar start-ups as well. Many of its customers use online marketplaces (such as Amazon) to sell their products, meaning that Kabbage is helping to expand the level of business traffic occurring here.

With more than half of these small e-commerce businesses unable to get funding from traditional sources like major banks, Kabbage is opening up the market for expansion so that start-ups using Amazon can get off the ground and see real growth rather than stagnating as a tiny hobby venture. For Amazon, this means substantial growth in revenues gained from the private sellers it hosts in its online marketplace.

The 5-years old online loan provider has begun partnering with other companies, offering both publicity and a share in the profits. Amazon could potentially benefit greatly from considering a partner deal with the up-and-comer. This could be one strategy to boost the stagnating growth and ease some of the pressure coming from competitors.

Bottom line

Amazon is well-known for its innovation and its dominance in the world of e-commerce. Despite disappointing fourth quarter results, the company shows every sign of being able to bounce back and make for a great year in 2014.