How Does Amazon Make its Money?
Amazon operates an e-commerce marketplace, Amazon Web Services (AWS) cloud computing platform, a digital advertising business, and various subscription services (Prime). While most people think of Amazon as an online retailer, the company’s profits come overwhelmingly from AWS and advertising — the retail business runs on razor-thin margins.
Revenue Breakdown
| Segment | 2024 | 2023 | YoY Growth |
|---|---|---|---|
| Online Stores | $247.0B | $231.9B | +6.5% |
| Physical Stores | $21.4B | $20.0B | +7.0% |
| Third-Party Seller Services | $156.2B | $140.1B | +11.5% |
| Advertising | $56.2B | $46.9B | +19.8% |
| AWS | $107.6B | $90.8B | +18.5% |
| Subscriptions (Prime) | $44.7B | $40.2B | +11.2% |
| Other | $5.3B | $4.9B | +8.2% |
| Total Revenue | $638.0B | $575.0B | +11.0% |
Online Stores — 39% of Revenue
Direct retail sales where Amazon buys inventory and sells it to customers. This is the classic Amazon shopping experience. Margins are thin (1-3%) due to fulfillment, shipping, and return costs.
Third-Party Seller Services — 24% of Revenue
Marketplace fees, FBA (Fulfillment by Amazon) fees, and commissions from the millions of third-party sellers on Amazon. Higher-margin than first-party retail since sellers bear inventory risk.
AWS — 17% of Revenue
Amazon’s cloud computing platform powering millions of businesses. AWS offers 200+ services including compute (EC2), storage (S3), databases, AI/ML (Bedrock, SageMaker), and more. AWS is the world’s largest cloud provider with ~31% market share.
Advertising — 9% of Revenue
Sponsored Products, Sponsored Brands, and display ads shown to shoppers on Amazon. This is essentially a toll on sellers who pay Amazon to surface their products. High-margin and growing rapidly.
Prime Subscriptions — 7% of Revenue
Prime membership ($139/year or $14.99/month) provides free shipping, Prime Video, Prime Music, and other benefits. Over 200 million Prime members globally.
Income Statement Overview
| Metric | 2024 | 2023 |
|---|---|---|
| Total Revenue | $638.0B | $575.0B |
| Operating Income | $68.6B | $36.9B |
| Net Income | $59.2B | $30.4B |
Key Financial Metrics
- Operating Margin: 10.8% — A record high. Amazon’s margin expansion has been dramatic as high-margin businesses (AWS, ads) grow faster than retail.
- AWS Operating Margin: ~37% — AWS alone generated ~$39.8B in operating income, more than half of Amazon’s total.
- Advertising Growth: +19.8% — Amazon’s ad business is now larger than YouTube’s entire ad revenue.
What to Watch
- AWS and AI — Amazon is investing heavily in custom AI chips (Trainium, Inferentia) and the Bedrock platform. Winning AI workloads is critical to maintaining AWS’s cloud market share against Azure and GCP.
- Margin expansion — As advertising and AWS become larger shares of revenue, overall margins should continue expanding.
- Same-day delivery — Amazon is building regional fulfillment networks to enable same-day and next-day delivery, further raising the bar competitors must clear.
- Antitrust — The FTC has filed a monopoly suit against Amazon alleging anti-competitive practices in its marketplace. The outcome could force structural changes.
- International profitability — International e-commerce remains less profitable than North America. Achieving sustained profitability internationally would unlock significant value.