amazon-operating-profit-breakdown

Amazon Profit Breakdown

Amazon is subdivided into three operating profit segments: North America, International, and AWS. Amazon AWS is the most profitable segment, with almost $23 billion in operating profit in 2022. While Both the North American and International segments run at negative operating losses, with $2 billion and $7.74 billion in operating losses, respectively, in 2022.

This is what Amazon’s cost structure looks like.

amazon-cost-structure

Both the North American and International segment of Amazon are running at negative margins.

Indeed, in 2022, for the North American segments, of almost $316 billion in revenue, Amazon spent almost $319 billion in operating costs to run it, thus it generated $2 billion in operating losses in 2022.

For its International segment, of $118 billion in revenue, Amazon spent almost $126 billion to operate it. Thus, it reported a $7.7 billion operating loss.

While for AWS, with $80 billion in revenue, Amazon spent $57 billion to operate it, thus generating almost $23 billion in operating income.

The high operating costs are primarily due to the high cost of running Amazon’s inventory and fulfillment infrastructure behind its e-commerce operations. Indeed, Amazon is as much as a physical player as a digital one.

From here you can appreciate Amazon’s profitability without AWS.

is-amazon-profitable-without-aw
Amazon was not profitable once AWS was removed in 2022. In fact, Amazon, without AWS generated $10.6 billion in operating losses. While Amazon, without AWS, generated $12.2. billion operating income.

Connected to Amazon Business Model

Amazon Business Model

amazon-business-model
Amazon has a diversified business model. In 2022 Amazon posted over $514 billion in revenues, while it posted a net loss of over $2.7 billion. Online stores contributed almost 43% of Amazon revenues. The remaining was generated by Third-party Seller Services, and Physical Stores. While  Amazon AWS, Subscription Services, and Advertising revenues play a significant role within Amazon as fast-growing segments.

Amazon Mission Statement

amazon-vision-statement-mission-statement (1)
Amazon’s mission statement is to “serve consumers through online and physical stores and focus on selection, price, and convenience.” Amazon’s vision statement is โ€œto be Earthโ€™s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices.โ€ 

Customer Obsession

customer-obsession
In the Amazon Shareholders’ Letter for 2018, Jeff Bezos analyzed the Amazon business model, and it also focused on a few key lessons that Amazon as a company has learned over the years. These lessons are fundamental for any entrepreneur, of small or large organization to understand the pitfalls to avoid to run a successful company!

Amazon Revenues

amazon-revenue-model
Amazon has a business model with many moving parts. With the e-commerce platform which generated over $222 billion in 2021, followed by third-party stores services which generated over $103 billion, Amazon AWS, which generated over $62 billion, Amazon advertising which generated over $31 billion and Amazon Prime which also generated over $31 billion, and physical stores which generated over $17 billion.

Amazon Cash Conversion

cash-conversion-cycle-amazon

Working Backwards

working-backwards
The Amazon Working Backwards Method is a product development methodology that advocates building a product based on customer needs. The Amazon Working Backwards Method gained traction after notable Amazon employee Ian McAllister shared the companyโ€™s product development approach on Quora. McAllister noted that the method seeks โ€œto work backwards from the customer, rather than starting with an idea for a product and trying to bolt customers onto it.โ€

Amazon Flywheel

amazon-flywheel
The Amazon Flywheel or Amazon Virtuous Cycle is a strategy that leverages on customer experience to drive traffic to the platform and third-party sellers. That improves the selections of goods, and Amazon further improves its cost structure so it can decrease prices which spins the flywheel.

Jeff Bezos Day One

jeff-bezos-day-1
In the letter to shareholders in 2016, Jeff Bezos addressed a topic he had been thinking quite profoundly in the last decades as he led Amazon: Day 1. As Jeff Bezos put it “Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”

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