How Does Amazon Make Money? Business Model Explained!

Amazon is a multinational e-commerce company headquartered in Seattle, USA, and is currently one of the largest Internet online retailers in the world. Amazon ranks 44th in the annual ranking of the 500 largest companies in the world. Amazon ranked 8th on the Fortune 500 list in 2017.

Amazon has retail locations in the United States, Canada, the United Kingdom, France, Germany, China, Singapore, Italy, Spain, Brazil, Japan, India, Mexico, Australia, and the Netherlands, and some of its products are also shipped internationally. Logistics are sold to other countries. It is expected that countries such as Poland and Sweden will also open substations.

In February 2020, Amazon’s market value officially reached the $1 trillion mark (note: the company reached the goal twice, on September 4, 2018, and 2019, but was unable to maintain it to the end), ranking second only to Apple, Microsoft and Alphabet’s Google. It is the fourth publicly traded company in the U.S. with a market capitalization of more than $1 trillion.

Amazon’s Financials

According to its market value, Amazon is one of the world’s largest companies. The market capitalization of Amazon was $1.6 trillion as of February 18, 2022.

During the fourth quarter (Q4) of its 2021 fiscal year (FY), which ended Dec. 31, 2021, the company earned $14.3 billion in net income. The company’s net income increased 98.3% over last year’s quarter. Net sales, as Amazon calls its revenue, rose 9.4% year over year (YOY) to $137.4 billion. A significant increase in other income boosted Amazon’s profits. As a measure of profitability, operating income for the company’s segments declined 49.7% YOY to $3.5 billion.

Amazon’s Business Segments

There are three segments of Amazon’s business: North America, International, and AWS (Amazon Web Services). Amazon’s retail business is divided into two geographical segments, North America and International. Their revenue is derived from retail sales in North America and around the world, as well as subscriptions and export sales.

Online stores, which account for the majority of sales, can be divided into physical stores as well. In Q4 FY 2021, online sales accounted for $66.1 billion, or about 48% of net sales, while physical stores generated $4.7 billion, or about 3%.

How Does Amazon Make Money?

North America

North America accounts for the majority of Amazon’s net sales, with $82.4 billion in Q4 FY 2021. About 60% of the company’s net sales are derived from this segment, an increase of 9.3% from last year’s quarter. The segment posted a $206 million operating loss during the quarter, a significant decline from $2.9 billion in operating income in the year-ago quarter.

In addition to retail, Amazon Prime offers free shipping and unlimited streaming of movies, TV shows, and more to customers in North America.

International

In Amazon’s International segment, you will find consumer products and subscriptions for international-focused online stores. Also included are exports from these stores, but not those from online stores that have a North American focus.

In Q4 FY 2021, the segment posted an operating loss of $1.6 billion, a significant decline from the operating income of $363 million in Q4 FY 2020. International net sales decreased by almost 1.0% YOY to $37.3 billion, comprising about 27% of total net sales.

Amazon Web Services (AWS)

As a provider of information and content storage and delivery services, Amazon Web Services (AWS) was launched in 2006 and offers services to businesses, government agencies, and academic institutions. Amazon describes AWS as a cloud-based infrastructure platform for hosting applications and websites, providing enterprise technology, and delivering content.

As of Q4 FY 2021, Amazon’s AWS segment generated $17.8 billion in sales and $5.3 billion in operating income. Operating income grew 48.5% and net sales grew 39.5% over the year-ago quarter. 

However, AWS’s operating income is substantially higher than its net sales for both the North America and International segments. About 13% of net sales go to the AWS segment. AWS accounts for all of the company’s operating income in the fourth quarter because the other two segments posted operating losses.

The company controls about a third of the global cloud market, significantly more than its nearest competitor. Google Cloud (GOOGL) and Microsoft Azure (MSFT) are AWS’ biggest competitors.

Recent Development

Employees at an Amazon warehouse in Staten Island, N.Y., voted to unionize on March 16, 2022. The warehouse will hold a union election from March 25 to March 30. Before the election can proceed, the National Labor Relations Board (NLRB) must approve the election’s parameters.

A separate election will be held at an Amazon warehouse in Alabama at the same time as the Staten Island election. As of early February, the workers at the Bessemer plant began voting by mail. They have until March 25 to submit their ballots to the NLRB.

Amazon announced plans on Dec. 21, 2021, to add jobs at its Phoenix Tech Hub in Arizona and its Austin Tech Hub in Texas. According to the company, more than 2,000 jobs will be created in Austin and 550 will be created in Phoenix.

Leave a Comment