Amid all the hoopla surrounding next month’s Prime Day, it’s worth remembering just how little impact the event will have on Amazon’s overall financial performance: Measured by its bottom line, Amazon in 2024 is primarily a cloud-computing company.
But millions of merchants and consumers rely On Amazon’s marketplace. Below is an analysis of the company’s overall financial performance and plans for buyers, sellers, logistics, and more.
Evaluating Amazon’s financial health requires a bit of digging. The company, notoriously opaque in what it discloses (and doesn’t disclose), operates through three components:
The first are the physical and digital goods that it holds in inventory and sells directly to consumers, either online or through brick-and-mortar stores like Whole Foods Market. Amazon calls this component “product sales.”
Next comes what the company calls “services revenue,” which consists of fees from its massive marketplace and associated fulfillment, shipping, and advertising revenue. Services revenue breaks out Prime membership fees and, specifically, fees to its massive cloud computing division, Amazon Web Services.
However, for the purposes of this article, we’ll treat AWS as a separate component due to its scale and profitability.
Combined, the three components will generate revenue of $143.3 billion in the first quarter of 2024, up 13% year-over-year.
Operating income for the first quarter of 2024 reached $15.3 billion, up significantly from $4.8 billion in the same period last year.
The overall picture looks like this:
- Amazon relies heavily on AWS. Its cloud division is all Operating margins (operating expenses less net sales) were about 62% in the first quarter last year and are about 62% this year.
- While “product sales” have grown slowly, they are likely marginally profitable at best, given the estimated cost of goods associated with that category. Amazon does not report operating profits from product sales alone.
- “Services Sales” (excluding AWS) are the combination of “Third Party Seller Services” (marketplace fees and related), “Advertising Services”, and “Subscription Services” (primarily Prime membership), which are easier to make profits on than “Products”. But again, Amazon doesn’t report operating income separately for Services. However, here’s a breakdown of revenue for these items:
according to According to Marketplace Pulse, Amazon now captures more than 50% of marketplace sellers’ revenue, up from 40% five years ago. According to Marketplace Pulse, a typical Amazon seller pays 15% in transaction fees, 20-35% in Fulfillment by Amazon fees, and up to 15% for advertising and promotion on Amazon. Total fees vary depending on the category, product price, size, weight, and the seller’s business model.
Delivery and AI
Amazon delivers to Prime members Faster than evermore than 2 billion packages arrived same or next day worldwide in the first quarter. In March, across the top 60 U.S. metropolitan areas, nearly 60% of Prime members’ orders arrived same or next day, and in London, Tokyo and Toronto, three in four orders were delivered same or next day.
Whole Foods and Amazon Fresh currently offer a grocery subscription service that offers unlimited delivery on orders over $35. The program is available to Prime members in more than 3,500 U.S. cities, as well as customers who use electronic benefit transfer cards, meaning they are using government benefits.
Amazon continues to roll out generative artificial intelligence “Rufus” Shopping AssistantAmazon.com Inc., which serves millions of U.S. customers, said the bot, still in beta, can answer shopping-related questions and compare and recommend products. Amazon said it has improved Rufus’ accuracy and response speed, and added features such as “My Orders,” which answers questions like “When was the last time you ordered coffee?” and “What was the last dog treat you ordered?”
The company continues to add Generative AI features For marketplace sellers: One of the new tools allows sellers to sync product listings from their websites by providing a URL. The program parses the information from the websites and creates “high-quality, attractive listings” on Amazon.
Profitability
Amazon reported that its net income (operating profit minus taxes and special items) for the 12 months ended March 31 was about $37.7 billion, up 778% from $4.3 billion in the same period last year, but the company sees further improvement ahead.
During an earnings call in April, CEO Andrew Jassy said, “We don’t believe we’ve done all we can do in terms of improving our store-side (i.e. ‘product sales’) cost structure. Certainly, we think we have incredible growth opportunities ahead of us around store profitability.”
“We are thoroughly examining every option, reviewing every process and operation on the logistical side to see how we can lower our cost structure and improve speed and selection. We are making progress on many fronts, but cost remains absolutely our top priority as we strive to improve the customer experience,” he added.
While profits have grown significantly over the course of the year, the company’s operating margins have not, which may be contributing to the cost concerns. Amazon reported that its worldwide net sales operating margins for the 12 months ended March 31 were 8%, up from 2.5% a year ago. The North American figure totaled 5.2% through March, compared with -0.1% a year ago. The international net sales figure improved to -0.4%, from -6.6%.
Global Logistics
In September 2023, the company introduced “Supply Chain by Amazon,” which provides third-party logistics around the world.
“In some ways this is similar to other businesses that we’ve been involved in. AWS is one example of that,” Jassy said on the conference call.
This service helps sellers get their products Across borders Amazon also ships products from customs to various facilities and allows sellers to store products in warehouses and have them automatically replenished in Amazon’s fulfillment centers or moved elsewhere.
“It’s a lot of work to actually import products from overseas, go through customs and the border, and then ship them to various facilities,” Jassy said. “We built that capability ourselves first, and then offered those services to merchants as a separate service.”
Amazon’s supply chain has “growth is enormous. We believe it’s already a reasonably sized business,” Jassy said, adding that the low-capital program is still in its early stages.
