The company also sells Amazon-branded products such as the Alexa assistant and ecosystem and movies through its Amazon Video platform . The company’s net income more than tripled last year to $ 10.1 billion with a 31% gain, to $ 232.9 billion. It therefore ranks as one of the best companies in the world by market value.
While Amazon’s e-commerce operations have brought a long list of industries to its knees and put many traditional industry leaders out of business, digital retail is not the Seattle-based company’s main revenue generator. Most of its operating profit is generated by its cloud services platform, Amazon Web Services (AWS) . The unit accounted for 58% of operating profit in the fourth quarter of last year, during a year in which its cloud revenue increased 47%.
How to Earn Amazon – e-Commerce
Amazon accounted for about 50% of all online sales in the US last year ( eMarketer data ), generating $ 208 billion from retail operations in the US and overseas. The company generates the majority of its revenue by selling merchandise on its site through first and third party sales, by entering into sales agreements with popular brands such as Nike Inc. (NKE).
But the company is increasingly building its business with products like its Alexa suite, the AI-driven personal assistant. Amazon’s growing size has allowed it to gain market share with its ability to drive prices below competitors, as well as offering discounts, free shipping, and other promotions via the popular Amazon Prime monthly subscription .
How Amazon Earns – No Cash Cow
The term cash cow (not to be confused with cash flow ) is a financial term that roughly has the meaning of our “cash cow” . More properly, it indicates a series of very profitable transactions that lead to high cash flows, obtained with little investment in new technologies and with a high profit margin.
While Amazon is by far the leading e-commerce company, it’s not a huge cash cow. Indeed, in some cases he also loses money. For example, the company lost $ 2 billion on $ 66 billion in international sales last year, even though it made $ 7 billion in operating profit with sales of $ 141 billion in North America.
How to Earn Amazon – Cloud
In contrast, Amazon’s cloud business for 13 years has had very high margins and makes up a fairly high share of Amazon’s profits. Its dedicated Amazon Web Services (AWS) division is a reference point for the various cloud services offered by the company and allow companies to store information and deliver content.
Amazon controlled 35% of the cloud market in 2018, more than double its closest competitor (Business Insider data) The company competes with cloud pioneers including Microsoft Corp.’s Microsoft Azure (MSFT) and Alphabet Inc.’s Google Cloud. (GOOGL). In 2018, the AWS division grossed nearly $ 26 billion in revenue, a 47% increase from the previous year, and generated more than $ 7 billion in operating income.
How Amazon Earns – Digital Advertising
Amazon has aggressively invested in digital advertising, which is expected to rise from $ 3.3 billion in 2017 to $ 15 billion by 2010, giving it a market share of around 10% (eMarketer data). This is likely to help increase Amazon’s profits. The company’s digital capability is already evident in its Amazon Video platform, which competes with entertainment leaders like Netflix Inc. (NFLX) and Walt Disney Co. (DIS).
How Amazon Earns – Key Challenges
Despite Amazon’s near-continuous growth, the company is facing and will face numerous challenges. Risks to society could be more intense government scrutiny and regulatory changes around the world, as well as anticipated spending increases. These factors could hold back Amazon’s growth.
Despite its size, the colossus created by Jeff Bezos will also face equally fierce, powerful and financially sound competitors such as Walmart Inc. (WMT), which is preparing a plan of attack to steal market share from Amazon.