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For the last couple of years, each quarter I’ve been posting a quick analysis of Amazon’s quarterly business results in a Twitter thread. I don’t use Twitter much any more, and Mastodon doesn’t make it easy to post threads, so the blog it is. Summary: Amazon’s retail business loses money (as usual) but the AWS and Advertising businesses are huge, throw off lots of cash, and continue to grow fast. They subsidize the money-losing retail operation in a way that seems deeply unfair to me.

Source: Q4 2022 Earnings Release.

Looking at Amazon as a whole, quarterly sales are up 9% year-over-year to $149.2B, annual sales also 9% to $514B. The company as a whole had a GAAP profit of $0.3B in Q4 and loss of $2.7B for the whole year; operating incomes were $2.7B and $12.2B respectively.

“Profit” is an accounting abstraction, what concerns me more would be the negative free cash flow of $19.8B over the course of 2022. Perhaps someone more finance-literate could offer a good reason why this shouldn’t be a worry?

AWS · What a story: Quarterly revenue growth of 20% year-over-year to $21.4B, annual revenue growth of 29% to $80.1B. The quarterly operating income was $5.2B, $22.8B annually. That income increased hardly at all, and annually was “only” up from $18.5B in 2021, so the margins, while excellent, are falling a bit.

AWS is now considerably bigger than IBM and much more profitable.

Every time I report these AWS numbers I stop and shake my head; a combination of top-line total, continuing growth, and sustainable margin at this scale is mind-boggling.

Other stuff · Advertising quarterly revenue is up to $11.5B, that’s 23% year-over-year. Note that they don’t report income, but my bet (without any inside information) is that the margin is even higher than AWS’s.

The internal structure of the retail operation is broken out, highlighting that third-party seller services is a monster business, running over $36B in the most recent quarter, growing at 24%.

Owning the store everyone shops at is a good business.

Take-away · Amazon as a whole isn’t really very profitable. Its retail sector loses money, and that loss is made up by the tens of billions of gravy coming in from AWS and Advertising.

Why is this business structure considered rational? And why is it legal for Amazon to be the prime competitor of the economy’s whole retail sector while not having to make a profit?

Obviously, foregoing profit for the sake of growth is a tried-and-true business strategy, and laudable within limits. But it seems obvious to me that Amazon is way, way past those limits.

As I’ve said since the moment I walked out Amazon’s door in May 2020, AWS should be spun off. The best time to do that was three years ago. The second best time is now.


Comment feed for ongoing:Comments feed

From: Nik (Feb 02 2023, at 17:16)

I don't have any insider knowledge into this, but I always felt that the whole "AWS makes money, Retail loses it" seems overblown.

After all, it's Amazon that gets to choose the org chart. It gets to choose where it categorizes Big Bets that may require massive investment into R&D but have nothing to show for it.

Now, we may already have enough evidence that something like Alexa can never be a big business.

But there's a whole other series of verticals - from robots to A/R to i don't even know what Time Travel? That in theory all their losses get counted against the retail operation, making it seem unprofitable.

So while I'm with you that AWS should definitely be spun off, I also wonder if the worry that Amazon uses unsustainable tactics (i.e. "using the profitable AWS to undercut retail competitors") is overblown.

I bet the pure Retail operation is profitable in it's own right. But the AWS profits get funneled into a ton of long-term big bets rather than quarterly profits.


From: (withheld by request) (Feb 02 2023, at 22:44)

I have had a long career working at a reasonably high level in several different large not for profits. Large charities with complicated structures in several different divisions. Because these divisions are part of a single organization, they do alot of business with each other, both in obvious and in many many non-obvious ways. Consequently, we have a great deal of capacity to show surpluses (we don't have "profits" of course) and losses wherever it is most desirable or advantageous to show them. You'd think there would be rules against that kind of thing..... well, lets just say there are lots and lots of GAAP "rules," and auditors ultimately work for whomever is writing the cheque...

I imagine the for-profit world might just possibly be even less altruistic and transparent than a charity?

So it is just possibly conceivable that the ownership of Amazon might want to show it is earning healthy profits in the part of its business that is delivering good service, and not show enormous profits in the part of its business that is effectively a rapacious exploitative monopoly well along Doctorow's Enshittification Curve?

Excuse me now, our year-end is coming up in 2 months and I have to get back to "balancing" my books prior to the annual audit...

(name withheld by request please....)


From: Ed Davies (Feb 03 2023, at 03:55)

Naïvely, I'd think that, given any accounting flexibility to do so, Amazon would want to show a profit for its retail operations and less or no profit for AWS to fend off accusations of undercutting in the retail market.

BTW: “Are there more or less than one hundred pages on the Web?”

Good thing there are more than 100 as I'd have balked at answering “less” while wondering if “fewer” would have been accepted. This is among the most harmless of confusions in English but it still grates.


From: C. Choumert (Feb 06 2023, at 09:24)

Negative cash flows with profits close to 0 can have several causes (including creative accounting).

Here, most likely it's due to large investments: the cash comes out of the coffers now (big cash flow impact), but from an accounting point of view it creates an asset that depreciates over several years (diluted income impact). An example could be new datacenters for AWS with lots of servers... It's not an issue in and of itself as long as Amazon has reserves of cash / is not indebted, which I believe to be the case.

NB: this is a theoretical explanation; I did not go through Amazon's quarterly financial report.


From: None (Feb 06 2023, at 11:08)

Man, reading your continued anti-Amazon posts have been getting really annoying the last few years. You didn’t last here, but are spinning it as being better than us and that’s why you left. Go do something else and quit the constant complaining. There are so many of us that wish you would just shut your mouth and go disappear.

Time to see how long before you delete this, proving it’s true.


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