This is an analysis of Amazon ($AMZN), exploring their business and diverse sources of revenue.
None of this is investment advice, this note simply summarizes my research on this company.
FYI $AMZN is one of the positions of my stock picking portfolio
What is the business of Amazon ?
Amazon is a commerce and cloud services company that makes most of its money through online retail and Amazon Web Services (AWS).
It’s currently the 2nd company in the world with the biggest revenue, almost tied with Walmart & well above the next companies.
It has 3 main pillars:
- E-commerce: Biggest source of revenue (but not of profits 👀)
- Products sold by Amazon on Amazon
- “3rd party sellers services” → products sold by 3rd parties leveraging the Amazon infra
- Cloud: AWS, leader with 30% market shares (20% Azure, 13% GCP).
- Main source of profits (75% of operational profits)
- Advertising: Fast growing segment
- Complementary with the e-commerce side
- 3rd biggest digital advertising company in the US (after Google and Meta)
- Also on Twitch, Prime Video, Amazon Music…
Detailed services description
List of all the services / companies part of Amazon.
Consumer services
- Amazon (online store)
- Products bought & resold
- Amazon basics / essentials: Products manufactured by amazon
- 3rd party sellers services
- Physical stores
- Wholefoods
- Fresh / Go (automated stores, no cashier and facial recognition for Go)
- Style (clothing with AI recommandations)
- Prime (200M+ subscribers)
- Prime Video (2nd steaming platform after Netflix)
- MGM Studios producing content
- Prime Music
- Audible (audiobooks)
- Twitch
Consumer hardware products
- Ring (doorbells & cameras)
- Kindle (e-books reader), Kindle Unlimited (subscription)
- FireTV
- Alexa (home assistant)
- eero (WiFi devices)
- blink (smart devices)
Enterprise solutions
- FBA program (Fulfillment By Amazon): Store & expedite products for a company. Only FBA products are eligible to Prime (Switching costs MOAT)
- Amazon Pay (payment solution for external marketplaces / e-shops, like PayPal)
- Partners program (list products on your website, earn per click)
- Amazon Business (online store with wholesale prices & pro offers)
- Ads
- Sponsored products (in the marketplace when searching)
- Display ads (banners on Amazon.com / Twitch)
- Video ads (on FireTV and Twitch)
- KDP (Kindle Direct Publishing), service to self-publish print and digital books easily (Amazon handles the edition, printing and distribution for you)
Developers & IT infrastructure
- AWS (leader in the cloud)
- 200+ services
- S3, EC2, Cloudfront, DynamoDB, AWS Lambda…
- Used by Netflix, AirBnB, Disney…
- Trainium (internal AI chips)
Internal logistics
- Prime Air (internal airline for deliveries, with Airbus A330 cargo planes)
- Amazon robotics (internal robotics automations)
- Flex for deliveries by individuals (like Uber but for package delivery)
Others
- Investments in Nuclear energy (especially SMR, Small Modular Reactor)
- Project Kuiper (orbit satellite network, Starlink competitor)
- Anthropic (~8% stake)
Future perspectives & risks
Competition
- Emerging low cost Asian platforms (Aliexpress, Shein, Temu…)
- But generally low quality items, not the same logistics infrastructure (one of the MOATs of Amazon that is almost irreplaceable, in deliveries the highest cost is the “last kilometer”, which is heavily optimized for Amazon)
- A big part of the e-commerce revenue is from the US whereas the adoption of these concurrent platforms is not
- AWS is the cashcow, but Azure & GCP are gaining market shares
- Walmart is a big concurrent also, starting to expand on the digital side (orders on their own site, test of deliveries by drone with Wing, a company owned by Alphabet)
Selling pressure
- Jeff Bezos owns ~8.2% of the shares
- His ex-wife MacKenzie Scott owns 0.75%
- Both are selling extensively
Revenue
Recurring
- AWS (multi-year contracts / switching costs)
- Prime subscriptions (98% retention rate, average yearly spending of US subscriber of 570 for non-subscribers)
- Kind of like the Costco subscription in the US, once you pay Prime you order everything on Amazon to get your money’s worth, and with all the additional services (Prime Video / Music / Twitch Prime…) you never cancel it
Cycling / non-recurring
- Marketplace (growing but can still be impacted by economic cycles)
- Ads (same, depending on advertisers spending)
Growth potential
- AWS as cloud / AI demand increases
- Robotics & AI to further improve the logistics infrastructure
- 750k robots currently
- a lot of potential to reduce costs & improve the e-commerce margins
- will also provide a lot of data and expertise on AI robotics, a big AI field pretty unexplored right now, especially on the enterprise side (some solutions are starting to explore it on the consumer side)
MOATs
- Intangible Assets: strong brand + huge database of purchase habits
- Network effect: more buyers → more sellers → more buyers…
- Switching costs: for AWS, Prime for consumers used to the 1 day delivery, businesses using FBA are quickly locked in it
- Efficient scale: Logistic infrastructure, simply the best in e-commerce
Conclusion
Amazon is a diversified company, leader on the cloud with AWS, in e-commerce with Amazon.com & some other important revenue sources with subscriptions (Prime) and Advertising.
It has a good MOAT on all / most of its segments, a huge growth, potential to reduce their expenses / increase margins with robotics, predictable revenues with Prime…
There are some risks & competition, but I’m not worried about it especially since most of them are from Alphabet that I also own in my portfolio (YouTube vs Twitch, GCP vs AWS, Wing with Walmart for drone deliveries…).
It’s a great business that is often at an interesting price, this is why $AMZN is one of the positions of my stock picking portfolio.