AWS and services driving growth for Amazon
Amazon reported relatively low growth numbers of +9,4% for the last quarter of the year. The growth came on top of a very high growth from last year (+43,6%). The growth in the last quarter was typical for Amazon during the last years as it was mainly driven by services. The product sales did not grow at all (+0,5%) from last year.
This is the first time in 10 years, when Amazon product sales don’t grow at all.
AWS as the growth and profit driver
The growth decline is visible in the three segments of the company: North America, International and AWS. As the retail related segments of North America and International grew only little or not at all, the AWS segment kept on growing with a solid +40% YoY rate. The importance of AWS is highlighted in profits.
This was the first quarter in four years as the North American unit makes a quarterly loss.
Both the North American and International segments reported a loss for the quarter whereas AWS improved it’s profitability to a record $5,3 billion in profits. Thus, AWS is responsible for all profits made by Amazon.
Investments in the flywheel paying off
As the product sales remained sluggish, the service revenues kept on growing rapidly with a +21% growth on top of a 47,7% in Q4/2020. Services represented in 2021 about 49% of all revenue. Amazon is fast becoming a service company.
Especially fast has been the rise of Amazon Advertising revenues. Q4 was the first time Amazon is breaking out the Advertising revenue as it’s own revenue line.
In 2021 Advertising produced $31,1 billion dollars in revenue. That saw a 56% growth from the previous year!
The fast growth of Ads is leading Amazon to a situation where it’s investments in Marketing are paid off by the growing revenues from the Advertising unit. Both of these have been growing rapidly.
Similarly rapidly have grown revenues and costs related to logistics, the other part of the famous flywheel.
The share of 3rd party seller in the Amazon Gross Merchandise Value
Prime price increase leading to increased profits?
Amazon announced an expected price hike to it’s famous Prime membership program. Previous price hike happened in 2018 and the one before that in 2014, also four years earlier.
Since the previous price hike, the Subscription revenues from Prime have increased by 138%.
However, the growth in Subscription revenues has to slow down over the last couple of quarters. It can also be due to the high comparative growth numbers from the year before.
The two images above illustrate how rapidly the service parts of the Amazon business have been growing of the last years. This has been a result of a very long term investment into the flywheel elements. They are paying off handsomely for the company. And the company seems to be continuing in the path of high investments into the future.
One such element is the amount of employees in the company. It has grown rapidly. In Q4 alone Amazon added 140 000 employees to it’s workforce. Since the start of the pandemic the company has doubled its workforce.