Amazon.com Inc. (AMZN), the world’s largest online retailer, is growing rapidly in a broad range of businesses under founder and CEO Jeff Bezos, including its core e-commerce operations, cloud services, digital advertising, groceries, and prescription drugs. It also sells products such as the Alexa personal assistant and ecosystem, and movies and television shows through its Amazon Prime Video platform. Amazon's rivals include Walmart Inc. (WMT) and Alibaba Group Holdings (BABA).

Amazon Segment Breakdown

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.
  • Amazon Advertising Services is one of company's fastest growing businesses.
  • The company is facing increasing labor unrest, including numerous strikes, related to compensation and other practices.

Amazon's Financials

Amazon ranks as one of the world's top companies by market value. As of December 5, 2019, Amazon had a market cap of $867.4 billion.

The company's net income more than tripled year-over-year (YOY) in fiscal year (FY) 2018, rising from $3 billion in 2017 to $10.1 billion in 2018. Operating income for FY 2018 was $12.4 billion, up more than 202% from $4.1 billion in FY 2017. Net sales for Amazon last year were $232.9 billion, up almost 31% YOY.

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 about $123 billion in sales in 2018, or 52.8% of net sales, while physical stores generated $17.2 billion in sales, or 7.4% of net sales.

North America

Amazon's North America segment dominates its net sales, accounting for $141.4 billion in 2018 and operating income of $7.3 billion. This is about 60.7% of the company's net sales for the year. North America has grown slowly relative to the other segments YOY.

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

There is one Amazon segment that has not thrived in recent years: the International business. This 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. Amazon has lost money in each of the last 3 years in its International sales. In 2018, it lost $2.1 billion on $65.9 billion in International sales. This is an improvement from the operating loss for FY 2017, when the company lost $3.0 billion on $54.3 billion in International sales. In 2018, Amazon's International segment accounted for 28.3% of the company's net sales.

Amazon Web Services (AWS)

By contrast, Amazon Web Services (AWS), launched in 2006, has posted accelerating profit growth and high margins over the past three years. AWS provides services to businesses, government agencies and academic institutions to store information and deliver content. Amazon refers to them as a "broad set of global compute, storage database, and other service offerings." Amazon's AWS segment generated net sales of $25.7 billion and operating income of $7.3 billion in FY 2018, up from net sales of $17.5 billion and operating income of $4.3 billion in FY 2017. AWS sales and profit have consistently grown in the past three years. Although net sales from AWS are far below North America's figures, the two segments came very close to generating the same amount of operating income in 2018; 50.1% for AWS as compared with 49.9% for North America.

Amazon controlled more than a third of the cloud market in 2018, more than twice its next closest competitor. AWS competes mainly with Microsoft Corp.’s (MSFT) Azure, and Alphabet Inc.’s (GOOGL) Google Cloud.

Amazon's Recent Developments

AWS is the latest Amazon business to be included in an antitrust probe by the U.S. Federal Trade Commission (FTC). Amazon's retail segments have also faced heightened regulatory scrutiny, as the FTC conducts an antitrust investigation into major tech and e-commerce companies. Because of Amazon's dominance of the cloud market, the FTC investigation seeks to determine whether Amazon is unfairly favoring software companies that partner with Amazon over those which work with other cloud services.

Amazon also is facing mounting pressure from employees, unions and customers regarding its employment policies and compensation practices. On Black Friday 2019, traditionally one of the largest shopping days of the year, thousands of Amazon workers across Europe went on strike to protest unfair working conditions.

One Amazon's biggest recent initiatives has been its expansion into selling advertising, where it competes with Facebook, Inc. (FB) and Alphabet's Google unit. Through its advertising services, Amazon helps promote products by third-party partner vendors both within and outside of the Amazon platform. The company may have an advantage in providing retailers with a substantial return on investment (ROI), as Amazon's platform is already known to consumers as a hub for shopping. Amazon groups its advertising sales figures along with other undisclosed service sales in its annual report, making it difficult to assess advertising growth directly. But this business has been among Amazon's fastest-growing.