High growth plus big margins equals trouble for all other retailers.
Amazon’s first-quarter earnings report tells us everything we need to know about the advantage the online giant has over every other U.S. retailer. Namely, that it has two non-retail businesses that are growing super fast and are profitable.
Amazon’s fastest-growing business segment is its “other category,” which consists primarily of its growing advertising business. That segment grew north of 100 percent in the quarter, off of strong demand from advertisers who spend money to highlight their products over competitors’ in Amazon’s giant catalogue. The ad business now generates multiple billions in revenue.
And Amazon Web Services, which leases computing power and data storage to startups and large enterprises alike, continues to grow at north of 40 percent.
What makes the growth of these businesses so important to Amazon is that the growth comes with big profits. AWS’ operating profit margin is consistently north of 20 percent. And analysts believe that Amazon’s ad business also contributes significant profit to the overall bottom line.
As long as this remains the case, Amazon will continue to be able to run its core retail business at just a tiny operating profit, allowing it to keep prices low and delivery speeds fast. And that’s an advantage that continues to seem impossible to match.
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