Third-Party Sales, Cloud Services Drive Amazon’s Profitability, Says Fung Global Retail & Technology Report

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Prime membership is also driving growth, with 42 percent of all US adults and 55 percent of millennials now members, writes Managing Director Deborah Weinswig

June 06, 2017

 

NEW YORK (June 6, 2017) – Despite a 27 percent year-over-year increase in worldwide revenues in 2016, the bulk of dominant e-tailer Amazon.com’s profitability ironically does not derive from the direct sales of its goods to consumers. Instead, a growing contribution from its cloud computing subsidiary is driving profitability, even as revenues from third-party sellers now exceed sales made by the company directly, says “Deep Dive: Amazon in 20 Charts-the Rise and Rise of the E-Commerce Giant,” a new report from global think tank Fung Global Retail & Technology.

With an estimated $98 billion worth of goods sold in the U.S. in 2016 (including sales by third-party sellers), Amazon is the fourth largest retailer in the country. The average U.S. adult spent just over $412 with the company last year. Driving those sales, at least in part, was Amazon Prime: An estimated 42 percent of all U.S. adults and 55 percent of all millennials are Prime members.

“Amazon declared total worldwide revenues of $136 billion in 2016, and some $90 billion of that came from the U.S. But these revenues tell only part of the story because so many of the sales transacted on Amazon are made by third-party sellers, for which Amazon books only commission,” writes Fung Global Retail & Technology Managing Director Deborah Weinswig. “Moreover, Amazon’s stated revenues include its Amazon Web Services cloud-computing business.”

Fully half of all product sales made by Amazon worldwide are now made by third-party merchants. For these third-party sales, Amazon’s commission is typically about 15 percent of the purchase price. The company also can generate additional fees by storing and dispatching the inventory for these sellers. These fees are supporting the strengthening of Amazon’s profitability.

The company’s profitability also is being driven by Amazon Web Services (AWS), a subsidiary that provides on-demand cloud-computing platforms to individuals and companies. Its 25 percent operating margin exceeds those for all of Amazon’s product-selling businesses, even though AWS contributed just 9 percent of Amazon’s total revenue last year, the report says.

“The segment is expected to continue growing its share of total revenue, so its contribution to group margins will continue to grow,” Weinswig says.

Additional revenues will come from new markets as Amazon launches a full offering in Australia at a date to be announced (likely in 2018) and expands its investment in India, where it will open seven more fulfillment centers by the end of this month.

The report, which can be found here, features selected data available from the Amazon Shopper Intelligence Service, which combines Fung Global Retail & Technology analysis and commentary with input on thousands of U.S. shoppers from Prosper Insights & Analytics, all presented in 20 charts. Other recent reports issued by Fung Global Retail & Technology include: “Deep Dive: Aussies, Get Ready for Amazon!“; “Deep Dive: US Consumer Survey-Amazon Prime Members Love Shopping Offline Too“; “Fast Fashion Speeding Toward Ultrafast Fashion“; and “Deep Dive: The Mall is Not Dead” series.

Fung Global Retail & Technology’s reports and analyses can be found at www.FungGlobalRetailTech.com and www.deborahweinswig.com. Subscribe here to receive Deborah Weinswig’s daily news and analysis on retail, fashion and technology.

About Fung Global Retail & Technology
Fung Global Retail & Technology is a think tank whose research team, based in New York, London and Hong Kong, follows emerging retail and tech trends, specializing in the ways retail and technology intersect, and in building collaborative communities.

The team, led by Deborah Weinswig, former top Wall Street and retail tech analyst and startup advisor, publishes ongoing thematic and global market research on topics such as the Internet of Things, digital payments, omnichannel retail, luxury and fashion trends, and disruptive technologies. More information can be found at www.FungGlobalRetailTech.com.

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