Barnes & Noble and Amazon. com had been in constant fight between each other since the explosion of online purchasing. Before the mid 1990’s online purchasing introduction, Barnes & Noble had big dominance in bookselling, as it was the largest bookstore in the world. With the entrance to the book market by Amazon. com, Barnes & Noble found a big competitor, as it represented a new and innovative way of purchasing a book. Making a financial analysis on both companies, we could notice certain differences that mark advantages for both sides.
The financial study was done in a p of 4 years of operation for Barnes & Noble (1992-1996) and 6 years of operation for Amazon. com (1995-2001). Given numbers can be seen in Exhibit 1 and 2 for both companies. Now, with both financial reports, we can create many conclusions about both enterprises. First of all, we will talk about the increase in revenues that both experienced throughout their years. Barnes & Noble Amazon. com Now, taking into consideration Barnes & Noble’s chart, we can see that there is a constant growth in revenues from year to year.
The average growth from year to year was of 22. 52% in the four year analysis. This is an important factor as we can notice that the company’s sales were always increasing and that the growth rate would not fluctuate throughout the years. Regarding Amazon. com’s chart, we can see that there is a huge exponential growth. On the first years of operations, Amazon suffered of a big growth in sales, having almost 3000% more sales from 1995 to 1996. Now it is important to notice how the rate lowered throughout the years to reach a 31. 50% from 2000 to 2001. We can see a huge growth in the first years because Amazon. om was something new to people as online bookselling wasn’t that famous. As people settled to the idea and competitors like Barnes & Noble adjusted to this change, sales growth went down to a normal growth rate, which in average was still higher than that of Barnes & Noble. With the information, we can also see that Barnes & Noble achieved a higher net income than Amazon. com in the 1990’s. It is obvious that this was due to the fact that the first mentioned company had already been running for many years and that already had a fair amount of costumers, while Amazon. om was a new company trying to be known in the bookselling universe. The following charts show the information on net income for both companies in their respective periods. Barnes & Noble Amazon. com We can notice that even when both companies had years in which they suffered big losses in income, they achieved to finish the period with a positive net income. It is also interesting to see how both net incomes grow throughout their respective periods, being Amazon the company with the steadiest growth rate.
What we can get from the net income analysis, is that even when Amazon had a slow start due to the introduction of a new purchasing method, which almost always comes with some uncertainty from the customers, it has managed to increase its income throughout the years to the point in which it has catched up with Barnes & Noble, it’s main competitor. Now, in order to know how Amazon has achieved such a growth in net income throughout the years, we have to review the ratios as percentage of sales for both companies. Barnes & Noble Amazon. com
When analyzing both charts, we have to take into consideration that both companies experienced a growth on net income. We can see that both cost structures are mostly similar, with the exception that Barnes & Noble has to deal with infrastructure depreciation. Now, leaving aside the cost structure, let’s pay close attention to the percentages throughout the years. Both companies experience a decrease on the percentages of sales on all their structure, which is really important when expecting an income growth, but it is really impressive how big is Amazon’s decrease.
They were able to mitigate every part of their cost structure in the analyzed period, which is reflected on the percentage of income out of sales that they have. Take for example the cost of sales. While Barnes & Noble managed to decrease that cost in only 1% from the first to the last analyzed year, Amazon was able to decrease it in almost 5%. Thus, income percentages are also very different, having Barnes & Noble with a 2% at the end of the period while Amazon had a big 7% at the end of the period.
So, in conclusion we can see that the struggle between these two companies is still even and could balance to any side. Making a future prediction based on the numbers that were presented, we can assume that Barnes & Noble’s revenues will remain on the same growth rate throughout the years while Amazon’s will stabilize on a certain rate and continue on it. We can also see that Barnes & Noble can still change their cost structure, as Amazon did, in order to achieve much higher and more regular net incomes throughout the years.
It isn’t very healthy for the company that one year they have a high net income and the next one is a big loss, as the operations are affected by it. Both financial structures will be affected by the advantages and disadvantages of online vs. traditional bookselling. In recent years, online selling has become more and more popular worldwide as people regard it as a faster, cheaper and easier way to buy the books they want. This could be reflected in higher revenues for companies such as Amazon. com and a net income decrease on the big bookstores such as Barnes & Nobles. Barnes & Noble (Exhibit 1) Amazon. com (Exhibit 2)
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