Amazon.com Inc
Deep analysis

I. Amazon’s business model: the profit pool is AWS, the sales base is retail

Amazon is a platform and cloud-infrastructure business with a very large owned-inventory retail arm attached, and it is still in expansion rather than harvest. In FY2025 it booked $716,924 million of net sales, but AWS supplied 18.0% of revenue and 57.0% of consolidated operating income. A point of AWS margin moves group earnings at roughly three times its revenue weight. The customers are not one group — shoppers, third-party sellers, advertisers, Prime members, and enterprises buying compute each pay on a different basis — and the customer set generating the most reported revenue is not the one generating the profit. That mismatch is the business.

Where the money actually comes from

FY2025 net sales split as first-party online stores 37.6%, third-party seller services 24.0%, AWS 18.0%, advertising 9.6%, subscriptions 6.9%, physical stores 3.1%, and other 0.8%. AWS, advertising, and subscriptions together were 34.4% of net sales against 26.6% in FY2021. Over that stretch, consolidated revenue compounded at 11.1% a year and the operating margin went from 5.3% to 11.2%. Profitability improved mainly through mix, not scale alone: advertising bills sellers for placements and carries little incremental fulfillment cost, and seller services bill on volume Amazon does not own. The retail arm still employs about 1,576,000 people, which is why the mix shift matters more than headline growth.

Gross versus net: the marketplace moves more volume than the revenue line shows

Third-party sellers supplied 61% of worldwide paid units in Q4 2025 and between 60% and 62% in every quarter since Q3 2024, yet seller services were just 24.0% of FY2025 net sales. Amazon records only its net share of a marketplace order, because it is not the seller of record, and records the full sale on goods it owns. Two consequences follow. Reported revenue growth understates unit growth, and it is more sensitive to fee rates than to shopper demand. Net service sales reached 58.7% of net sales in FY2025, up from 48.5% in FY2021.

The tradeoff: Amazon’s take rate versus seller and advertiser economics

Higher commissions, fulfillment fees, and ad load lift Amazon’s revenue per order today. They also lower seller returns, and that can slow unit growth, push sellers toward other channels, and shrink the ad budgets that fund the highest-margin line. Seller unit mix is the cleanest test: holding near 60–62% while fee revenue per unit rises would suggest sellers are absorbing the take rate. Falling unit share alongside rising per-unit fees would suggest the take rate has hit a limit. The disclosure is thin — Amazon publishes seller unit mix only quarterly in its earnings exhibit, with no audited annual figure, so a full-year seller trend has to be assembled by hand.

AWS: capacity is being added faster than rivals are being caught

AWS grew 19.7% in FY2025, slower than Google Cloud at 35.8%, Microsoft’s Intelligent Cloud at 29.7%, and Oracle’s cloud infrastructure line at 76.9%, though those rival segments are defined differently and are not directly comparable. AWS operating margin slipped from 37.0% to 35.4%. Cash purchases of property and equipment reached $131,819 million, up 58.8% and equal to 94.5% of operating cash flow, with AWS taking 67.8% of property additions; capital spending for the twelve months to June 2026 was $173,028 million, 22.3% of revenue against 9.2% three years earlier. Reported earnings also flatter the picture: in the June 2026 quarter, $80.9 billion of pretax income included $53.4 billion of nonoperating income, almost all an unrealized revaluation of the Anthropic stake. Trailing reported EPS of $12.39 becomes about $6.65 on a core basis. The buildout is a bet that demand arrives before depreciation does.

What would change the judgment

Four things matter most. Whether AWS’s growth gap to rivals narrows. Whether third-party unit share stays above 60%. Whether advertising grows faster than paid units. And whether capacity added in 2025–2026 converts into AWS revenue within a normal build-to-revenue window. If AWS keeps lagging while capital spending holds above 20% of revenue, Amazon’s profit pool becomes a capital-intensive one rather than an asset-light platform. One caution on disclosure: the risk factors in the annual report do not discuss capital expenditure at all, so the main structural risk to this model is not described where investors would look for it.

II. Financial Quality: Operating Profit Is Real, Reported Profit Is Not

Amazon’s operating business earns considerably more than it did four years ago, and operating cash flow keeps climbing. Two things complicate the picture: where reported profit now comes from, and how much cash the AI buildout absorbs. In the quarter ended June 30, 2026, Amazon reported net income of $62.6 billion against $27.5 billion of operating income, because roughly $53.4 billion of pre-tax other income — mostly mark-ups on the Anthropic stake — sat below the operating line. Headline earnings are no longer a clean proxy for what the business earns.

All figures below are USD, from the supplied financial statements unless noted. FY2026 Q2 is a single quarter and is not comparable to the annual flow columns. FY2025 margin, leverage, and asset-turn figures and all FY2026 ratio figures are calculated from supplied statements, since the indicator file does not disclose them.

Metric (USD bn unless noted)	FY2021	FY2022	FY2023	FY2024	FY2025	FY2026 Q2 (interim)	Assessment
Revenue	469.8	514.0	574.8	638.0	716.9	200.6 (quarter)	Strong
Operating income	24.9	12.3	36.9	68.6	80.0	27.5 (quarter)	Strong
Net income	33.4	-2.7	30.4	59.3	77.7	62.7 (quarter)	Distorted
Gross margin	42.0%	43.8%	47.0%	48.9%	50.3% (calc.)	52.3% (calc.)	Strong
Net margin	7.1%	-0.5%	5.3%	9.3%	10.8% (calc.)	31.2% (calc.)	FY2025 strong; Q2 not meaningful
ROE	28.8%	-1.9%	17.5%	24.3%	Not disclosed	n/a	Strong, but inflated bases
ROA	9.0%	-0.6%	6.1%	10.3%	Not disclosed	2.7% (quarter)	Adequate
Liabilities / assets	67.1%	68.4%	61.8%	54.2%	49.7% (calc.)	49.7% (calc.)	Adequate
Asset turnover	1.27	1.16	1.16	1.11	0.99 (calc.)	0.25 (quarter)	Adequate, declining
Operating cash flow	46.3	46.8	85.0	115.9	139.5	45.4 (quarter)	Strong
Free cash flow	-14.7	-16.9	32.2	32.9	7.7	-8.8 (quarter)	Weak, deteriorating

Metric (USD bn)	25Q1	25Q2	25Q3	25Q4	26Q1	26Q2	Assessment | Trend
Revenue	155.7	167.7	180.2	213.4	181.5	200.6	Strong | Rising
Operating income	18.4	19.2	17.4	25.0	23.9	27.5	Strong | Rising
Gross profit	78.7	86.9	91.5	103.4	94.1	104.8	Strong | Rising
Net income	17.1	18.2	21.2	21.2	30.3	62.7	Distorted | Jumping on non-operating gains
Total assets	643.3	682.2	727.9	818.0	916.6	1,095.7	Adequate | Rising fast
Total liabilities	337.4	348.4	358.3	407.0	474.7	544.1	Adequate | Rising
Total equity	305.9	333.8	369.6	411.1	441.9	551.6	Adequate | Partly non-cash
Cash	66.2	57.7	66.9	86.8	101.8	78.2	Adequate | Falling
Current liabilities	176.2	186.9	195.2	218.0	216.8	241.3	Adequate | Rising
Operating cash flow	17.0	32.5	35.5	54.5	26.0	45.4	Strong | Rising
Free cash flow	-8.0	0.3	0.4	14.9	-18.2	-8.8	Weak | Negative
Net PP&E (fixed assets)	Not disclosed	Not disclosed	Not disclosed	Not disclosed	Not disclosed	Not disclosed	Not disclosed | Unknown

The six quarters above are every quarter supplied; earlier periods are not available, and the quarters sum cleanly to FY2025 annual totals, so these are single-quarter figures.

Operating leverage is real, and AWS supplies most of it

Gross margin rose from 42.0% in FY2021 to 50.3% in FY2025, and to 52.3% in Q2 2026. The cause is structural mix rather than broad pricing power. AWS generated $16.6 billion of the quarter’s $27.5 billion operating income on $42.2 billion of sales — a 39% segment margin — while North America earned $9.1 billion on $116.2 billion, about 7.8%. Advertising, up 26%, sits on top. The transmission is straightforward: high-margin cloud and ads growth lifts consolidated margins even when retail margins stay thin, which is why operating income grew faster than revenue. The risk embedded in that relationship is concentration — most consolidated operating income now moves with one segment. Debt service is not a constraint: FY2025 interest expense of $2.3 billion against $80.0 billion of operating income.

The cash problem is capital spending, not collections

Operating cash flow rose from $46.8 billion in FY2022 to $139.5 billion in FY2025 and $161.4 billion on a trailing-twelve-month basis. Operating cash flow against net income was 1.8x in FY2025 — strong alignment. Free cash flow moved the other way: $32.9 billion in FY2024, $7.7 billion in FY2025, and a trailing-twelve-month outflow of $7.6 billion per the Q2 release. Deriving capex as operating cash flow minus free cash flow in the supplied data, spending rose from roughly $83 billion in FY2024 (13% of revenue) to about $132 billion in FY2025 (18%), and to roughly $98 billion in the first half of 2026 — about 26% of revenue. Management attributes the increase to AI infrastructure, so this is an investment-led drain, not a collections failure. A drain like that is defensible only if the assets earn; the supplied data contains no depreciation, segment ROIC, or utilization figures to check that yet. That is the most important gap in the file.

Investment marks inflate equity and will dilute future returns

Total assets went from $818.0 billion at December 31, 2025 to $1,095.7 billion at June 30, 2026, and equity from $411.1 billion to $551.6 billion. Net income across those two quarters was $92.9 billion, so roughly $48 billion of the equity increase came from something other than retained profit — consistent with revaluing investment stakes. Two consequences follow. First, first-half net income of $92.9 billion against operating cash flow of $71.4 billion is a conversion ratio of 0.77, versus 1.8 for FY2025; the difference is non-cash. Second, a much larger equity base mechanically lowers future ROE. FY2025 net income on year-end equity is about 18.9% (calculated), and the same earnings spread over the June 2026 base would look materially weaker. ROE is becoming a less informative measure here, and ROIC cannot be derived from what is supplied.

Leverage isn’t the risk; the disclosure gaps are

Liabilities were 49.7% of assets at June 30, 2026 (calculated), down from 68.4% in FY2022, and much of that is operating liabilities that fund themselves. Goodwill of $23.5 billion has been flat for years — about 2% of assets — so impairment risk looks small. But several working-capital measures are simply missing: current ratio, inventory turns, receivables turnover, and net PP&E are undisclosed, and the quick ratio prints as 0.0, which is a data artifact rather than a reading. Cash of $78.2 billion against $241.3 billion of current liabilities looks thin on its face, though Amazon’s payables and unearned revenue make a naive current-ratio test less useful than it looks. One item genuinely needs explaining: financing cash flow was +$52.8 billion in Q1 2026, unusual for a company that normally repays debt. Nothing in the supplied data identifies the instrument.

Three things to check from here: the nature and cost of that Q1 financing inflow and whether interest expense keeps climbing; whether capex produces incremental AWS revenue at stable segment margins; and whether the Anthropic marks are realized or reversed, and what tax they eventually attract — the supplied Q2 data shows no tax provision at all, which is a gap rather than a zero.