, 11 tweets, 5 min read Read on Twitter
Amazon it is.

The company is infamous for "losing money."

But did you know that it has been operating cash flow positive since 2002?

1/ Amazon typically re-invests all of its profits back into the business for growth purposes.

Here's a pretty crazy fact.

Amazon's free cash flow return on invested capital has basically mirrored its stock price over the past 9 years.
2/ So while, yes, Amazon doesn't have crazy GAAP accounting profits, it's very cash generative.

With that out of the way, let's break down how it makes money.

The company has 6 operating segments

1P, 3P, AWS, subscriptions, Whole Foods, and ads
3/ So here is how it breaks down by the 6 revenue segments.
4/ But in its 10k, Amazon breaks it down into 3 segments:
1. North America
2. International
3. AWS

The big thing to notice here is how profitable AWS is.

It has basically the same EBIT as the North American segment, which has 5.6x the number of sales.
5/ And as you can see more clearly here, though AWS made up about 10% of sales, it accounted for:

75% of EBIT in 2016
105% of EBIT in 2017


60% of EBIT in 2018
6/ So one way to frame Amazon's business model is that AWS is funding the rest of the business.

This is mostly true, but remember how the company has been cash-flow positive for 17 years now.

There is more to the story and that is the move to being a third-party marketplace.
7/ As you can see from the last picture, 58% of Amazon's GMV of $277 billion is from third-party sellers.

While Amazon doesn't break out profitability between 1P and 3P, it is safe to say 3P is much more profitable.

Look at the gross margins and that is not including AWS.
8/ Further, we can figure out the take-rate based on the GMV (gross merchandise volume) Amazon gave out in 2018 (the first time since 2002 actually)

3P revenue: $42.7 billion
3P GMV: $160 billion

3P take-rate: 26.7%

Here's another clue revealing the importance of third-party.
9/ Another powerful thing about Amazon is its cash conversion cycle.

It actually can USE the cash it has received from customers as float for 17 days.

This is compared to Costco's 4 day cash conversion cycle.

That means Amazon takes WAY longer than Costco to pay suppliers.

I'll end with the 6 segments again.

Amazon is a powerhouse that keeps re-investing in its business.

Even its ad business is doing $10 billion in sales!

While most of the sales still come from 1P e-commerce in North America, 3P and AWS are really the profit drivers.
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