Last week, we interviewed a Former Finance Manager at Amazon who was partly responsible for collating separate country and retail product category financials into one consolidated AMZN P&L for Brian Olsavsky, AMZN’s CFO.

In this analysis, we breakdown AMZN’s non-AWS P&L to better understand the underlying e-commerce unit economics.

The first insight from the interview is that the S-Team looks at the retail P&L excluding ads and Prime.

If you include ads in the core consumer business, you are unable to assess the health of the business, at its fundamentals. When you think about core ecommerce, because the fulfilment network and those investments are so massive, there is a relentless focus on optimizing the opex/capex outlays associated with those operations…if you include the advertising numbers in the core consumer business, it entirely obfuscates how that business is operating independently of the advertising. - Former Finance Manager at Amazon

This is so AMZN: management doesn’t include advertising or subscription revenue when calculating e-commerce gross or contribution margins.

Some may argue it makes no sense; advertising is an online slotting fee and Prime revenue helps cover huge same-day delivery costs, etc. But management is focused on improving the operating cost per parcel shipped. If you include ads and subs, it hides the underlying retail operating efficiency. It could lead to the dreaded Day 2.

AMZN’s consolidated cost of sales includes product, shipping, video / music licensing costs, and Whole Foods COGS. If we assume WFM operates at ~35% gross margin, AMZN’s e-commerce cost of sales is split as follows:

Source: AMZN, IP
Source: AMZN, IP
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