Amazon has an amazing business, but the retail operation that so many Americans are familiar with isn’t it. There is of course no denying Amazon is one of the most dominant forces the retail world has seen in decades. But from a profitability perspective, Amazon’s retail operation is marginal. Over the last twelve months Amazon retail has made only a single cent in operating income for every $1,000 in sales. That translates to $188 million in operating income on $174 billion in sales.
Contrast that with Amazon Web Services, Amazon’s cloud business. Web services made $4.8 billion in operating income on just $19.2 billion in sales.
The chart below illustrates just how meaningful Amazon’s web services business is to company profit.
Investors buying Amazon because it is a dominant ecommerce business might want to reconsider their thesis. Based on its profitability, Amazon is first and foremost a technology business. And a damn pricey one. Amazon shares trade at 265X earnings.