Most people (and many investors) still think of Amazon (AMZN -1.19%) as an e-commerce business because Amazon has become so ubiquitous with consumers. But what they may not be as aware of is that Amazon Web Services (AWS) has been the company's spark plug since 2006, generating cash to fund e-commerce and other projects, becoming Amazon's most profitable segment.
One person who does know is Amazon's head of AWS, Adam Selipsky. In a recent interview, he pointed out that there is a massive opportunity still ahead of AWS and that it can become a much bigger part of the company overall. Here is what investors need to know about what Selipsky had to say.
It's still "Day 1" for AWS
Amazon Web Services is a cloud platform, a collection of hardware and software that offers computing services like storage, servers, and networking for Amazon to use and for other enterprises to rent on a metered billing model that generates plenty of recurring revenue.AWS' clients can remotely access its services, removing the need to invest in setting up or maintaining a physical computing system. It's all done over the internet, so companies don't need to use servers or other equipment.
AWS' success at offering this service has made it the leading cloud platform in the world; Statista estimates the cloud platform industry today is worth $180 billion globally, and AWS controls an estimated 33% of the market.
While discussing AWS' opportunity last week in a CNBC interview, Selipsky noted that roughly 10% of the world's IT has migrated to the cloud, which means that AWS is still operating as though it is "Day 1" for this segment of the company and most of its growth is yet to come. That Day 1 reference is related to a philosophy former CEO Jeff Bezos advocated that involves maintaining a start-up mentality that fights challenges, embraces change, and employs quick decision-making.
AWS is where the profits are at
Growing AWS could be the best business outcome possible for investors because it's Amazon's most profitable business by a country mile. The e-commerce business might generate a ton of revenue, but it's price competitive and requires spending on logistics and labor costs to support it.
Amazon overall generated $24.8 billion in operating profits in 2021, and AWS was responsible for $18.5 billion (or 74%) of it. Basically, a business segment that contributes 14% of overall revenue is generating roughly three-quarters of Amazon's total operating profits.
AWS revenue totaled $62 billion in 2021, a 37% increase over 2020. Even if AWS grows by just 25% over the next three years, AWS will double its size. It would remain a minority of Amazon's business at $124 billion in annual revenue. However, assuming margins stayed the same, Amazon's total operating profits would grow 48% by year three, from $25 billion to $37 billion. AWS is so profitable that it can move Amazon's bottom line despite its small size, and this will have more impact as AWS becomes a larger contributor.
AWS growing and contributing more to the company should only help fund more investments to expand Amazon's emerging side businesses, including digital ads and content.
What might drive AWS' growth
Amazon's done $478 billion in total revenue over the past four quarters, on a seemingly inevitable path to reaching $1 trillion in annual revenue at some point. From a sales standpoint, AWS is still small in Amazon's grand scheme, contributing just 14% of revenue. Selipsky thinks that will steadily change.
The segment chief is likely right. Grand View Research estimates cloud computing is a $484 billion business worldwide, which could grow to $1.5 trillion by 2030. A tripling of the market by 2030 could easily mean a tripling for AWS as well. AWS could leverage its cloud platform leadership and expand its offerings to capture market share in other niches within cloud computing. It already offers more than 200 services today.
Priorities and circ*mstances can always change, but the odds are good that Amazon's $67 billion in annual AWS revenue has room to grow through 2030 and potentially far beyond that. That makes the stock worthy of adding to one's portfolio.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
FAQs
AWS is the fastest growing and most profitable segment.
With an operating profit margin of 29%, AWS is also the company's most profitable segment.
What are Amazon's profitable segments? ›
Amazon Web Services
It's also Amazon's most profitable business by far, according to EMARKETER's The Power of Amazon in 2023 report. AWS represents a small share of Amazon's net sales, but it has grown from 12% in 2020 to 16% in 2022, per Amazon's 2022 earnings.
What is Amazon's largest source of revenue? ›
How does Amazon make most of its money? Retail is Amazon's primary source of revenue, with online and physical stores together accounting for the biggest share.
What are the profits of AWS? ›
AWS parent company Amazon generated $143 billion in net sales during the first quarter of 2024, a 12 percent increase compared with $127 billion in first-quarter 2023. Operating income for Amazon was $15.3 billion in first-quarter 2024, compared with $4.8 billion in first-quarter 2023.
Who pays more AWS or Microsoft? ›
Amazon Web Services (AWS) has an average salary of $106,210 USD across all jobs. Google Cloud (GCP) has an average salary of $105,454 USD across jobs. Microsoft Azure has an average salary of $96,649 USD across jobs.
Which business is most profitable in Amazon? ›
Beauty & Personal Care shines bright, with nearly a third of sellers raking in hefty profits, driven by the soaring demand for self-care essentials. This category ranks among the top two most popular choices for sellers, alongside Home and Kitchen, which boasts a whopping 35% seller participation.
What is a profitable segment? ›
In other words, segment profitability is the practice of analyzing the profitability of products and services by customer or product line and then making modifications to increase profitability. It is a useful method to evaluate the attractiveness and success of specific audiences a marketer targets.
What niches sell most on Amazon? ›
Fashion is the most common category sold online, but electronics, books, homewares, and arts and crafts are also extremely popular.
What is Amazon's profitability? ›
Amazon annual gross profit for 2023 was $270.046B, a 19.94% increase from 2022. Amazon annual gross profit for 2022 was $225.152B, a 14.01% increase from 2021.
Where is Amazon making the most money? ›
Amazon also operates some physical stores (including Whole Foods) and makes an increasing amount of money from advertising. However, the company's online stores and third-party seller services, which fall squarely into the e-commerce category, rake in the lion's share of the company's total sales.
USA: The Largest and Most Competitive Marketplace in the World. Undoubtedly, the most well-known and largest Amazon marketplace is the US market. It currently accounts for approximately 69.3% of Amazon's revenue and attracts nearly three billion website visitors each month.
Who is the biggest consumer of Amazon? ›
With 395.64 billion U.S. dollars in net sales, the United States were Amazon's biggest market in 2023. Germany was ranked second with 37.6 billion U.S. dollars, ahead of the UK with 33.6 billion U.S. dollars.
Who is AWS' biggest competitor? ›
Top Amazon Web Services Alternatives
- Microsoft Azure.
- Google Cloud Platform.
- IBM Cloud.
- Oracle Cloud Infrastructure.
- VMware Cloud on AWS.
- Huawei Cloud.
- Alibaba Cloud.
- DigitalOcean.
Revealed: the top 43 AWS products and services
- Amazon EC2 — 89.21%
- Amazon EC2 Auto Scaling — 71.84%
- Amazon Elastic Block Store (EBS) — 71.05%
- Amazon Simple Storage Service (S3) — 70.26%
- Amazon CloudWatch — 61.58%
- Amazon Relational Database Service (RDS) — 61.58%
- AWS Lambda — 60.79%
AWS provides cloud computing and hosting solutions to businesses, and its higher profit margins contribute significantly to Amazon's overall revenue. In contrast, the retail sector operates on lower margins due to the competitive nature of the e-commerce market.
Where is Amazon most successful? ›
Amazon North America
Undoubtedly, the most well-known and largest Amazon marketplace is the US market. It currently accounts for approximately 69.3% of Amazon's revenue and attracts nearly three billion website visitors each month.
Is Amazon one of the most profitable companies in the world? ›
One amazing example of a company focusing on growth instead of revenue early on, and which was one of the most profitable companies in the world according to Forbes Global 2000, is Amazon.com, Inc. (NASDAQ:AMZN).
What is the most profitable company in the world? ›
1) Saudi Aramco – $247.43 Billion
In 2023, Saudi Aramco, the Saudi Arabian oil giant, raked in the highest net revenue globally, scoring profits of over 247 billion U.S. dollars. Led by its current CEO Amin H. Nasser, this company, which started in 1933, thrives in the oil and gas industry.
)
