How Much of Amazon’s Revenue is From eCommerce?

Charlie Munger is famous for saying, “show me the incentive and I’ll show you the outcome.”

For Amazon the narrative around incentives and where they derive profits has never been consistent. 

Many people will tell you they hardly make a profit at all to avoid taxes, others will say all their profit is from their AWS business. 

Neither of which currently paint an accurate picture. 

As an Amazon seller it’s important to understand where you fit into the puzzle that is their cash flow statement. That way you can gain insight into where their attention will shift in the future. 

For example, Amazon doesn’t disclose the profitability of their advertising business but Benedict Evans infers that it’s reasonable to suggest that it’s contributing as much operating income as everything else apart from AWS and could be as much as half Google’s paid search business.

This is astonishing when you zoom out on their revenue as a whole. 

For context, ‘Marketplace’ is essentially FBA or the revenue generated from third party sellers. Obviously not insignificant but pales in comparison to their first-party business where they sell their own branded products 

Viewed differently you can see how the different segments stack up. 

This is all to say that ultimately Amazon is not a loss-making business that will eventually have to raise prices to make money; rather, it’s many businesses leveraging a common platform to benefit themselves.