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:
This document may not be reproduced, distributed, or transmitted in any form or by any means including resale of any part, unauthorised distribution to a third party or other electronic methods, without the prior written permission of IP 1 Ltd.
IP 1 Ltd, trading as In Practise (herein referred to as "IP") is a company registered in England and Wales and is not a registered investment advisor or broker-dealer, and is not licensed nor qualified to provide investment advice.
In Practise reserves all copyright, intellectual and other property rights in the Content. The information published in this transcript (“Content”) is for information purposes only and should not be used as the sole basis for making any investment decision. Information provided by IP is to be used as an educational tool and nothing in this Content shall be construed as an offer, recommendation or solicitation regarding any financial product, service or management of investments or securities.
© 2023 IP 1 Ltd. All rights reserved.
Subscribe to access hundreds of interviews and primary research