In recent years I’ve posted a quick analysis of Amazon’s results each quarter 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; this is the second outing. Summary: Amazon’s retail business loses money (as usual) but the AWS and Advertising businesses are huge, throw off loads of cash, and continue to grow fast. They subsidize the money-losing retail operation in a way that seems deeply unfair to me.

Source: Q1 2023 Earnings Release.

Looking at Amazon as a whole, quarterly sales are up 9% year-over-year to $127.4B. The company had a GAAP profit of $3.2B in Q1; operating income $4.8B.

“Profit” is an accounting abstraction. Free cash flow remains negative at $-3.3B in Q1. Hmmm.

I noticed that Amazon is now bragging about improvements in their safety numbers, reducing “recordable incidents” 24% since 2019. Now, the definition of such an incident, and whether Amazon is honest in counting them, are very much open to question based on past reporting, but at least they’re trying to look like they’re trying.

Amazon has been talking about using Rivian electric vans for delivery and now claim to have used them to deliver 75 million packages in the US. (They’ve also lost billions on their Rivian investment; half a billion in this quarter).

AWS · Quarterly revenue growth of 16% year-over-year to $21.4B; that YoY growth number continues a downward trend; it was 20% last quarter. I mean, it’s still a great business, with $5.1B in operating income (that’s an operating margin of 24%). Yes, once again, that income is higher than Amazon’s as a whole, we’re used to that now.

AWS is firmly ensconced in the top tier of IT companies. It’s no Microsoft or Google yet, but it’s 1½ IBMs, nearly two Oracles, or 2½ Salesforces.

The second derivative may be negative, but this combination of scale and margin and growth is still a very special business story.

I saw one thing that concerned me: new-customer announcements were kind of lacklustre. Hey, an AWS partnership for “smart living solutions” with Telus, a sprawling Canadian phone-company which conglomerates into agriculture and health and, I dunno, maybe stuffed toys. Not a locus of innovation. Similarly, T-Mobile 5G, uh-huh.

Other stuff · Advertising quarterly revenue is at $9.5B, growth over 23% year-over-year. Note that they don’t report income, but advertising is a high-margin business, my bet is it does better than AWS.

Take-away · (Note: Mostly copy/pasted from last quarter, which is a signal that this story goes on being the same.)

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 in 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.