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Amazon Under Fire: What Happens When Sales Growth Isnt Enough?

Amazon case study: Amazon Under Fire 
The following is a reproduction, with some paraphrasing, of a news article that recently appeared on Forbes.com. It highlights the difficulty corporations face in getting shareholders to reward their growth strategies. You should be aware, as hinted by this article, that although Amazon reports staggering revenue figures, its high cost margins mean that profits, when they are achieved, are relatively small. 
Amazon under fire: What happens when sales growth isn’t enough? 
The headline figure in Amazon.coms 2014 second-quarter earnings report looked great — a 23% jump in sales from the prior year, to $19.3 billion — but the underlying figures for the unprofitable online retailer brought out the pessimists on Wall Street. 
Amazon shares plummeted almost 11%, knocking $3.5 billion off the fortune of founder and CEO Jeff Bezos (now at $29.3 billion), after it lost 27 cents per share, much worse than the consensus estimate of 15 cents. The company’s perpetual lack of interest in turning a consistent profit and declining gross margins — which could fall further given the company’s ambitious investing in new areas — sparked concern among the analysts that watch the company. 
“[Investors] are less patient than before regarding ongoing margin pressure,” wrote Canaccord’s Michael Graham, who rates the stock a hold and dropped his price target to $340 after Thursday’s results. 
UBS analyst Eric Sheridan argues that Amazon can keep growing revenue at a 20% annual clip, but that it might not be enough for the market. He thinks investors “will struggle to buy the stock until more gross profit drops to operating income.” 
... 
Raymond James’ Aaron Kessler dropped his rating to market perform despite remaining bullish on Amazon’s long-term prospects, mostly because he expects shares to be stuck in a trading range “given continued high levels of investment combined with slowing unit growth (especially international growth).” 
More of the same came from Barclays Capital analyst Paul Vogel. “Amazon has always operated at razor thin margins,” he wrote, “but rapid revenue growth and optimism on long-term margin upside has been able to sustain the stock.” That’s certainly true, as shares have returned almost 700% over the last decade. But Vogel worries that “[w]ith revenue growth decelerating and margins moving in the wrong direction, the stock could be in for a bumpy ride.” 
... 
Goldman Sachs’ Heath Terry offered a similar sentiment. Terry noted that the pressure on Amazon margins are “clearly testing investor patience,” but argued that Bezos’ focus on constant investments in areas like grocery deliveries will have a productive endpoint. “We believe, as they have historically, these investments will generate incrementally higher levels of revenue and operating cash flow growth, ultimately driving share price outperformance.” 
At the moment though, confidence that Bezos knows best isn’t running at an all-time high. With Friday morning’s 10.7% loss to $320.42, shares of Amazon are down nearly 20% for the year (Schaefer 2014). 
References 
Schaefer, S 2014, ‘Amazon Under Fire: What Happens When Sales Growth Isnt Enough?’, forbes.com, accessed August 1, 2014, from 
ACCT20074 Final Assignment 
Term 2, 2017 
Student ID:………………………………. Student name…………………………………………………….. 
Marker’s overall comments: The markers may include any final comments here. 
Overall Mark (Total) out of 50: 0 

Question 1: There are several possible objectives for general purpose financial reporting. Explain what these objectives might be, and which one you think best applies to Amazon’s financial reporting (based on the information in the case study). Make sure that you fully explain your answer. 
Answer: Your answer is written here. 
References: 
Insert your references here, for example: 
Deegan, C. M. (2014). Financial Accounting Theory (4 ed.). North Ryde, NSW.: McGraw Hill Education (Australia) Pty Ltd. 
Marker’s Comments: The marker will provide feedback here. Mark (10): 

Exceeds Expectations 
(High Distinction) 85-100% Exceeds Expectations (Distinction) 75 - 84% Meets Expectations 
(Credit) 65 – 74% Meets Expectations 
(Pass) 50 – 64% Below Expectations 
(Fail) below 50% 
Demonstrates a balanced and very high level of detailed knowledge of core concepts by providing a very high level of analysis. Utilises current, appropriate and credible sources. Demonstrates a balanced and high level of knowledge of core concepts by providing a high level of analysis. Utilises mostly current, appropriate and credible sources. Demonstrates a good level of knowledge of some of the core concepts by providing some level of analysis. Utilises some current, appropriate and credible sources. Demonstrates limited knowledge of core concepts by providing a limited level of analysis. Utilises few current, appropriate and credible sources. Demonstrates little, if any, knowledge of the core concepts with extremely limited, if any, analysis. Utilises little, if any, current, appropriate and credible sources. 
Quality of writing at a very high standard. Paragraphs are coherently connected to each other. Correct grammar, spelling and punctuation. Quality of writing is of a high standard. Paragraphs are mostly well structured. Few grammar, spelling and punctuation mistakes. Quality of writing is of a good standard. Few grammar, spelling and punctuation mistakes. Some problems with sentence structure and presentation Frequent grammar, punctuation and spelling mistakes. Use of inappropriate language. Quality of writing is at a very poor standard so barely understandable. Many spelling mistakes. Little or no evidence of proof reading. 
The assessment presents a detailed and focused summary of the ideas presented; drawing clear and well thought-out conclusions. The assessment presents a fairly detailed and focused summary of the ideas presented; drawing fairly clear and well thought-out conclusions. The assessment presents a somewhat detailed and focused summary of the ideas presented; providing some evidence of conclusions. The assessment provides limited detail with no clear summary of the ideas presented; drawing limited conclusions. The assessment fails to provide any clear evidence of the ideas presented; drawing no clear conclusions. 

Question 2: From the case study, it appears that the CEO of Amazon, Jeff Bezos, might be receiving bonus company stock based on accounting outcomes (reported profit, for example, or share price performance). Let us assume for now that this is true. Would Jeff Bezos or Amazons shareholders prefer Amazon to use conservative accounting methods such as historical cost? Fully explain the likely preferences of both parties. 
Answer: Your answer is written here. 
References: 
Insert your references here, for example: 
Deegan, C. M. (2014). Financial Accounting Theory (4 ed.). North Ryde, NSW.: McGraw Hill Education (Australia) Pty Ltd. 
Marker’s Comments: The marker will provide feedback here. Mark (10): 

Exceeds Expectations 
(High Distinction) 85-100% Exceeds Expectations (Distinction) 75 - 84% Meets Expectations 
(Credit) 65 – 74% Meets Expectations 
(Pass) 50 – 64% Below Expectations 
(Fail) below 50% 
Demonstrates a balanced and very high level of detailed knowledge of core concepts by providing a very high level of analysis. Utilises current, appropriate and credible sources. Demonstrates a balanced and high level of knowledge of core concepts by providing a high level of analysis. Utilises mostly current, appropriate and credible sources. Demonstrates a good level of knowledge of some of the core concepts by providing some level of analysis. Utilises some current, appropriate and credible sources. Demonstrates limited knowledge of core concepts by providing a limited level of analysis. Utilises few current, appropriate and credible sources. Demonstrates little, if any, knowledge of the core concepts with extremely limited, if any, analysis. Utilises little, if any, current, appropriate and credible sources. 
Quality of writing at a very high standard. Paragraphs are coherently connected to each other. Correct grammar, spelling and punctuation. Quality of writing is of a high standard. Paragraphs are mostly well structured. Few grammar, spelling and punctuation mistakes. Quality of writing is of a good standard. Few grammar, spelling and punctuation mistakes. Some problems with sentence structure and presentation Frequent grammar, punctuation and spelling mistakes. Use of inappropriate language. Quality of writing is at a very poor standard so barely understandable. Many spelling mistakes. Little or no evidence of proof reading. 
The assessment presents a detailed and focused summary of the ideas presented; drawing clear and well thought-out conclusions. The assessment presents a fairly detailed and focused summary of the ideas presented; drawing fairly clear and well thought-out conclusions. The assessment presents a somewhat detailed and focused summary of the ideas presented; providing some evidence of conclusions. The assessment provides limited detail with no clear summary of the ideas presented; drawing limited conclusions. The assessment fails to provide any clear evidence of the ideas presented; drawing no clear conclusions. 

Question 3: Use Capital Markets Research (CMR) to explain the reaction of Amazon’s shareholders to Amazon’s earnings announcement. 
Answer: Your answer is written here. 
References: 
Insert your references here, for example: 
Deegan, C. M. (2014). Financial Accounting Theory (4 ed.). North Ryde, NSW.: McGraw Hill Education (Australia) Pty Ltd. 
Marker’s Comments: The marker will provide feedback here. Mark (10): 

Exceeds Expectations 
(High Distinction) 85-100% Exceeds Expectations (Distinction) 75 - 84% Meets Expectations 
(Credit) 65 – 74% Meets Expectations 
(Pass) 50 – 64% Below Expectations 
(Fail) below 50% 
Demonstrates a balanced and very high level of detailed knowledge of core concepts by providing a very high level of analysis. Utilises current, appropriate and credible sources. Demonstrates a balanced and high level of knowledge of core concepts by providing a high level of analysis. Utilises mostly current, appropriate and credible sources. Demonstrates a good level of knowledge of some of the core concepts by providing some level of analysis. Utilises some current, appropriate and credible sources. Demonstrates limited knowledge of core concepts by providing a limited level of analysis. Utilises few current, appropriate and credible sources. Demonstrates little, if any, knowledge of the core concepts with extremely limited, if any, analysis. Utilises little, if any, current, appropriate and credible sources. 
Quality of writing at a very high standard. Paragraphs are coherently connected to each other. Correct grammar, spelling and punctuation. Quality of writing is of a high standard. Paragraphs are mostly well structured. Few grammar, spelling and punctuation mistakes. Quality of writing is of a good standard. Few grammar, spelling and punctuation mistakes. Some problems with sentence structure and presentation Frequent grammar, punctuation and spelling mistakes. Use of inappropriate language. Quality of writing is at a very poor standard so barely understandable. Many spelling mistakes. Little or no evidence of proof reading. 
The assessment presents a detailed and focused summary of the ideas presented; drawing clear and well thought-out conclusions. The assessment presents a fairly detailed and focused summary of the ideas presented; drawing fairly clear and well thought-out conclusions. The assessment presents a somewhat detailed and focused summary of the ideas presented; providing some evidence of conclusions. The assessment provides limited detail with no clear summary of the ideas presented; drawing limited conclusions. The assessment fails to provide any clear evidence of the ideas presented; drawing no clear conclusions. 

Question 4: Explain how an Amazon investor might use heuristics to decide whether to buy, sell, or hold Amazon shares. To answer this, you should explain the various categories of heuristics available to the investor. 
Answer: Your answer is written here. 
References: 
Insert your references here, for example: 
Deegan, C. M. (2014). Financial Accounting Theory (4 ed.). North Ryde, NSW.: McGraw Hill Education (Australia) Pty Ltd. 
Marker’s Comments: The marker will provide feedback here. Mark (10): 

Exceeds Expectations 
(High Distinction) 85-100% Exceeds Expectations (Distinction) 75 - 84% Meets Expectations 
(Credit) 65 – 74% Meets Expectations 
(Pass) 50 – 64% Below Expectations 
(Fail) below 50% 
Demonstrates a balanced and very high level of detailed knowledge of core concepts by providing a very high level of analysis. Utilises current, appropriate and credible sources. Demonstrates a balanced and high level of knowledge of core concepts by providing a high level of analysis. Utilises mostly current, appropriate and credible sources. Demonstrates a good level of knowledge of some of the core concepts by providing some level of analysis. Utilises some current, appropriate and credible sources. Demonstrates limited knowledge of core concepts by providing a limited level of analysis. Utilises few current, appropriate and credible sources. Demonstrates little, if any, knowledge of the core concepts with extremely limited, if any, analysis. Utilises little, if any, current, appropriate and credible sources. 
Quality of writing at a very high standard. Paragraphs are coherently connected to each other. Correct grammar, spelling and punctuation. Quality of writing is of a high standard. Paragraphs are mostly well structured. Few grammar, spelling and punctuation mistakes. Quality of writing is of a good standard. Few grammar, spelling and punctuation mistakes. Some problems with sentence structure and presentation Frequent grammar, punctuation and spelling mistakes. Use of inappropriate language. Quality of writing is at a very poor standard so barely understandable. Many spelling mistakes. Little or no evidence of proof reading. 
The assessment presents a detailed and focused summary of the ideas presented; drawing clear and well thought-out conclusions. The assessment presents a fairly detailed and focused summary of the ideas presented; drawing fairly clear and well thought-out conclusions. The assessment presents a somewhat detailed and focused summary of the ideas presented; providing some evidence of conclusions. The assessment provides limited detail with no clear summary of the ideas presented; drawing limited conclusions. The assessment fails to provide any clear evidence of the ideas presented; drawing no clear conclusions. 

Question 5: Critical theorists view accounting very differently to positive or normative theorists. Use critical theory to explain how Amazon uses accounting and accountants for its own purposes. 
Answer: Your answer is written here. 

References: 
Insert your references here, for example: 
Deegan, C. M. (2014). Financial Accounting Theory (4 ed.). North Ryde, NSW.: McGraw Hill Education (Australia) Pty Ltd. 
Marker’s Comments: The marker will provide feedback here. Mark (10): 

Exceeds Expectations 
(High Distinction) 85-100% Exceeds Expectations (Distinction) 75 - 84% Meets Expectations 
(Credit) 65 – 74% Meets Expectations 
(Pass) 50 – 64% Below Expectations 
(Fail) below 50% 
Demonstrates a balanced and very high level of detailed knowledge of core concepts by providing a very high level of analysis. Utilises current, appropriate and credible sources. Demonstrates a balanced and high level of knowledge of core concepts by providing a high level of analysis. Utilises mostly current, appropriate and credible sources. Demonstrates a good level of knowledge of some of the core concepts by providing some level of analysis. Utilises some current, appropriate and credible sources. Demonstrates limited knowledge of core concepts by providing a limited level of analysis. Utilises few current, appropriate and credible sources. Demonstrates little, if any, knowledge of the core concepts with extremely limited, if any, analysis. Utilises little, if any, current, appropriate and credible sources. 
Quality of writing at a very high standard. Paragraphs are coherently connected to each other. Correct grammar, spelling and punctuation. Quality of writing is of a high standard. Paragraphs are mostly well structured. Few grammar, spelling and punctuation mistakes. Quality of writing is of a good standard. Few grammar, spelling and punctuation mistakes. Some problems with sentence structure and presentation Frequent grammar, punctuation and spelling mistakes. Use of inappropriate language. Quality of writing is at a very poor standard so barely understandable. Many spelling mistakes. Little or no evidence of proof reading. 
The assessment presents a detailed and focused summary of the ideas presented; drawing clear and well thought-out conclusions. The assessment presents a fairly detailed and focused summary of the ideas presented; drawing fairly clear and well thought-out conclusions. The assessment presents a somewhat detailed and focused summary of the ideas presented; providing some evidence of conclusions. The assessment provides limited detail with no clear summary of the ideas presented; drawing limited conclusions. The assessment fails to provide any clear evidence of the ideas presented; drawing no clear conclusions.

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