How does Amazon make money?
Amazon reports seven types of sales. In 2025: online stores, the products Amazon sells itself, $269.3 billion, about 37.6%. Third-party seller services, the commissions and fulfillment and shipping fees paid by independent sellers, $172.2 billion, about 24.0%. AWS, cloud computing, storage and databases, $128.7 billion, about 18.0%. Advertising services, mainly sponsored ads from sellers and brands, $68.6 billion, about 9.6%. Subscription services, mostly Prime memberships, $49.6 billion, about 6.9%. Physical stores, $22.6 billion, about 3.1%, and other, $5.9 billion.
The difference between the first two matters. When Amazon sells a product itself it records the full price as revenue, along with the cost of buying the item. When an outside seller makes the sale, Amazon is not the seller of record and books only its fees, so the same purchase adds less revenue but can earn a similar or better profit.
- Third-party seller services
- Amazon’s fees from independent merchants who sell in its stores: commissions on each sale plus fees for storing, packing and shipping their goods. Amazon records only these fees, not the price of the product.
Why does AWS make most of Amazon’s profit?
Amazon reports three segments: North America, International and AWS. In 2025 North America had $426.3 billion of sales, about 59%, and $29.6 billion of operating income, a margin of about 6.9%. International had $161.9 billion of sales and $4.8 billion of operating income, about 2.9%. AWS had $128.7 billion of sales, up 20%, and $45.6 billion of operating income, a margin of about 35.4%.
Retail has to buy, store and deliver physical goods: cost of sales was $356.4 billion and fulfillment another $109.1 billion, and shipping costs alone were $102.7 billion in 2025. AWS rents out computing capacity it has already built, so once the data centers are paid for, extra usage is far more profitable. That is why AWS earned 57% of operating income on 18% of sales.
- AWS (Amazon Web Services)
- Amazon’s cloud business: computing, storage, databases, AI and other services sold to start-ups, companies, governments and schools, mostly billed by how much they use.
How big is Amazon’s advertising business?
Advertising services brought in $68.6 billion in 2025, up about 22% from $56.2 billion, faster than any other type of sales. Most of it is sponsored ads that sellers, brands and authors buy to appear in Amazon’s search results and product pages, plus display and video ads. Amazon’s 10-K names higher advertising sales among the reasons North America and International operating income rose.
Subscription services, mostly Prime fees and digital content such as video and music, brought in $49.6 billion, up about 12%. Amazon says it views Prime and its other shipping offers as a marketing tool, but their cost is not counted in its sales and marketing expense.
Why did Amazon’s free cash flow fall in 2025?
Because spending on data centers and other property rose faster than cash from operations. Operating cash flow rose to $139.5 billion from $115.9 billion, but purchases of property and equipment, net of proceeds and incentives, jumped to $128.3 billion from $77.7 billion. Free cash flow, as Amazon defines it, fell to $11.2 billion from $38.2 billion. The 10-K says spending on technology and infrastructure will rise over time, including for AI.
Net income was $77.7 billion, almost as large as operating income, because of a $15.2 billion non-operating gain, mostly from revaluing Amazon’s preferred stock in Anthropic. Operating income itself carried a $2.5 billion charge for settling a lawsuit with the Federal Trade Commission and $2.7 billion of estimated severance costs. The free cash flow lesson explains why cash and profit can tell different stories.
- Free cash flow
- Cash from operations minus spending on property and equipment. Amazon subtracts purchases net of proceeds from sales and incentives.
What should you watch in Amazon’s earnings report?
Amazon reports after the US market close. Its fourth quarter, October to December, has historically been its biggest because of holiday shopping, so compare each quarter with the same quarter a year earlier. As one of the Magnificent Seven it can move the Nasdaq-100. Read these each quarter:
- AWS sales growth and AWS operating margin.
- Advertising services growth.
- Operating margin in North America and International.
- Purchases of property and equipment and free cash flow.
- Non-operating gains or losses, such as investment revaluations, that can swing net income; see how to read earnings reports.