That is still definitely our core business.
Over the past 20 years, Amazon (AMZN -0.17%) Amazon has built an unparalleled e-commerce business. At the same time, the company is constantly testing new business ideas. One of those ideas, Amazon Web Services (AWS), has grown into the world's largest cloud computing company by revenue. Along with AWS, Amazon has developed several other concepts that are already successful or are in development stages.
Given this diverse business model, is e-commerce still important to Amazon's overall business?
Key to Amazon's growth
Amazon's online store and third-party sales together make up the e-commerce segment, which accounted for $89.3 billion, or 62% of the staggering $143.3 billion in total sales in the first quarter of 2024. Ancillary e-commerce services such as subscriptions (Prime membership, e-books, digital music, etc.) can be considered part of e-commerce, and their share of total sales rises to 70%.
Amazon revenue by segments in Q1 2024. Image source: Statista.
Despite the growing importance of AWS and other businesses, e-commerce remains by far the company's primary business, but it is not its primary revenue driver, nor is it its fastest growing.
AWS accounted for more than 60% of Amazon's operating profits in Q1 2024, but only 17% of total revenue. Advertising is Amazon's fastest growing segment: while it accounted for just 8% of sales in Q1, the segment grew 24% year over year.
That's Amazon's growth model: The company makes money from e-commerce and then invests to make it more efficient and profitable. Last year, it moved from a national to a regional fulfillment network, getting more products to more customers, faster and at a lower cost. Shoppers who get their orders faster become more loyal and spend more, creating a virtuous cycle.
Amazon is using the revenue to fund its next growth area. Once upon a time, that was AWS. Now, AWS is the profit-making machine, and advertising is the growth. Amazon's “Other” category includes smaller, newer businesses. Currently, most of that is healthcare, which is the area that will produce the next big thing.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, serves on The Motley Fool's board of directors. Jennifer Cybill has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.
