How Amazon Makes Money: Shopping, Advertising, & Cloud

Amazon.com Inc. (AMZN), the world’s largest online retailer, has grown rapidly in a broad range of businesses including its core e-commerce operations, cloud services, and digital advertising. It also sells products such as the Alexa personal assistant and ecosystem, Kindle e-reader, Fire TV, and movies and television shows through its Amazon Prime Video platform. Amazon’s rivals include Walmart Inc. (WMT) and Alibaba Group Holding Ltd. (BABA).

Key Takeaways

Amazon makes money through its retail, subscriptions, and web services, among other channels.
Retail remains Amazon’s primary source of revenue, with online and physical stores accounting for the biggest share.
AWS is Amazon’s largest source of operating profits and is growing at a robust pace.
Amazon’s founder Jeff Bezos stepped down as CEO on July 5, 2021, in favor of Andy Jassy, who was previously the CEO of AWS.

Amazon’s Financials

Amazon ranks as one of the world’s top companies by market value. As of Oct. 1, 2021, Amazon had a market cap of $1.7 trillion.

The company posted net income of $7.8 billion during Q2 of its 2021 fiscal year (FY), the three-month period ended June 30, 2021. Net income rose 48.4% compared to the year-ago quarter. Revenue, which Amazon calls net sales, rose 27.2% to $113.1 billion for the quarter. Profits were fueled by robust revenue growth, but received an additional boost from a significant increase in other income. Operating income grew 31.8% to $7.7 billion.

Amazon’s Business Segments

Amazon divides its business into three segments: North America, International, and AWS. The first two of these segments, North America and International, refer to geographical breakdowns of Amazon’s retail business. They generate revenue from retail sales in North America and the rest of the world, as well as from subscriptions and export sales for those areas.

Retail can further be broken down into online stores, comprising the bulk of sales, and physical stores. Company-wide, online stores accounted for $53.2 billion in sales in Q2 FY 2021, or about 47% of net sales, while physical stores generated $4.2 billion in sales, or about 4% of net sales.

North America

Amazon’s North America segment dominates its net sales, accounting for $67.6 billion in Q2 FY 2021. That is an increase of 21.9% from the year-ago quarter and it comprises about 60% of the company’s net sales for the quarter. Operating income for the North America segment during the quarter was $3.1 billion, comprising about 41% of the total operating income for all segments. Operating income for the segment rose 47.0%.

Aside from retail, the other primary source of revenue for North America is subscriptions, including Amazon Prime, which offers unlimited free shipping, and unlimited streaming of movies, TV shows, and more.

International

Amazon’s International segment consists of Amazon’s retail business for consumer products and subscriptions for internationally-focused online stores. It also includes export sales from those stores, but not those from North America-focused online stores.

The segment reported operating income of $362 million in Q2 FY 2021, up 4.9% compared to the year-ago quarter. It accounts for about 5% of the operating income for all segments. Net sales for the International segment grew 35.5% to $30.7 billion, comprising about 27% of total net sales.

Amazon Web Services (AWS)

Amazon Web Services (AWS), launched in 2006, provides services to businesses, government agencies, and academic institutions to store information and deliver content. Amazon says AWS provides an “infrastructure platform in the cloud,” for a variety of “solutions” such as hosting applications and websites, providing enterprise IT, and content delivery.

Amazon’s AWS segment generated net sales of $14.8 billion and operating income of $4.2 billion in Q2 FY 2021. Net sales grew 37.0% while operating income rose 24.9% compared to the year-ago quarter. Although net sales from AWS are below net sales for the North America segment, AWS’s operating income is substantially higher. The AWS segment accounts for about 13% of total net sales and 54% of operating income for all segments.

Amazon controls about a third of the global cloud market, substantially more than its next closest competitor. AWS’s biggest rivals are Microsoft Corp.’s (MSFT) Azure and Alphabet Inc.’s (GOOGL) Google Cloud.

Amazon’s Recent Developments

On Sept. 14, 2021, Amazon announced that it was planning to hire 125,000 fulfillment and transportation workers across the U.S. in addition to the 40,000 corporate and technology jobs it announced earlier in the month. The company noted that it has opened 250 new fulfillment centers, sortation centers, regional air hubs, and delivery stations in the U.S. in 2021.

On Aug. 10, Amazon announced it would pay customers who suffer injury or property damage due to defective goods sold on the company’s U.S. platform. This shift in policy aims to stem a growing number of lawsuits against Amazon over the company’s potential liability for bad products sold by independent merchants on its site. As of Sep. 1, Amazon will pay valid claims up to $1,000 at no cost to sellers. More than 80% of injury and damage cases on the Amazon platform are within that range.

How Amazon Reports Diversity and Inclusiveness

As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the transparency of Amazon and its commitment to diversity, inclusiveness, and social responsibility. We examined the data Amazon releases to show you how it reports the diversity of its board and workforce to help readers make educated purchasing and investing decisions.

Below is a table of potential diversity measurements. It shows whether Amazon discloses its data about the diversity of its board of directors, C-Suite, general management, and employees overall, as is marked with a ✔. It also shows whether Amazon breaks down those reports to reveal the diversity of itself by race, gender, ability, veteran status, and LGBTQ+ identity.