Online retailer Amazon has been focusing on the expansion strategy to spread out the operations and capture a greater share in the market. While developing and implementing expansion and growth policies, Amazon experienced a decline in the profit growth in the first quarter of 2012. This decline in the profits and earnings growth has been, however, followed by rise in the company’s stock price.
The increase is said to be around 15 percent. The decrease in the profits growth is also said to be lesser than what was being predicted by analysts. So all the signals are encouraging for the company and it is looking forward to gaining a more stable position in the fierce competition.
The expansion and growth strategy is always very sensitive for any business entity, as existing shareholders are concerned about their profits and therefore feel uncertain about their gain through the investment. When a company grows, more capital is put into the operations and as a result, less is left for the shareholders that own the stock at that point in time. So satisfying the existing owners of the business is equally important in addition to attracting new investors.
The comapany’s management is hopeful for the future of Amazon while they stay firm at the expansion decision. They are positive that the revenues would rise for the next quarter and they would be able to achieve their performance targets. The company is competing among the IT giants in the global market and therefore continuous check on the performance measures is required.
Amazon has carried on with aquiring other companies while following the growth opportunities, but it is very important for any company to balance the growth with current profits. If the investments in growth opportunities consume a larger portion of the earnings, the sharehlders might not be satisfied with the performance of their stock. There are several types of shareholders among which one of the major types is those shareholders who want regular income from their stock. For such people, present earnings are more important instead of future gains.
For Amazon, the rise in share price gives a hint that the growth policy is being welcomed by the investors and they are favoring the company’s stock. The management is also very careful about their future plans so that no issues arise regarding the stock performance.