# How Amazon makes money

CXProWealth Business Lens · Amazon (AMZN) · Q3 FY2026

Read from the 10-Q for the period 2026-07-01 to 2026-09-30, filed 2026-10-30 with the SEC (accession 0001018724-26-000040): https://www.sec.gov/Archives/edgar/data/1018724/000101872426000040/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $201.9B (+12.1% on the year)
- Operating income: $28.1B (operating margin 13.9%)
- Net income: $20.7B (net margin 10.2%)
- Gross margin: 53.2%
- Free cash flow: -$34.8B (-17.3% of revenue)
- Cash conversion (operating cash flow / net income): 2.05x
- Capital expenditure: 38.3% of revenue

## Where the money goes (Q3 FY2026)

- Online stores → Net sales: $68.5B
- Physical stores → Net sales: $5.7B
- Third-party seller services → Net sales: $46.5B
- Advertising services → Net sales: $19.6B
- Subscription services → Net sales: $14.0B
- AWS → Net sales: $46.0B
- Other → Net sales: $1.6B
- Net sales → Total operating expenses: $173.9B
- Total operating expenses → Cost of sales: $94.6B
- Total operating expenses → Fulfillment: $30.0B
- Total operating expenses → Sales and marketing: $11.6B
- Total operating expenses → Technology and infrastructure: $34.8B
- Total operating expenses → General and administrative: $2.7B
- Total operating expenses → Other operating expense (income), net: $134.0M
- Net sales → Operating income: $28.1B
- Operating income → Total non-operating income (expense): $1.2B
- Total non-operating income (expense) → Interest expense: $1.7B
- Total non-operating income (expense) → Other income (expense), net: $703.0M
- Interest income → Total non-operating income (expense): $1.2B
- Operating income → Income before income taxes: $26.9B
- Income before income taxes → Provision for income taxes: $6.2B
- Income before income taxes → Equity-method investment activity, net of tax: $4.0M
- Income before income taxes → Net income: $20.7B

## Where the revenue comes from

### Products and services (Segment Information - Disaggregation of Revenue (Details))

| Member | Value | Share |
|---|---:|---:|
| Online stores | $68.5B | 33.9% |
| Third-party seller services | $46.5B | 23.0% |
| AWS | $46.0B | 22.8% |
| Advertising services | $19.6B | 9.7% |
| Subscription services | $14.0B | 6.9% |
| Physical stores | $5.7B | 2.8% |
| Other | $1.6B | 0.8% |

The members sum to total revenue.

### Segments (Segment Information - Reportable Segments and Reconciliation to Consolidated Net Income (Details))

| Member | Value | Share |
|---|---:|---:|
| North America | $112.9B | 55.9% |
| AWS | $46.0B | 22.8% |
| International | $43.1B | 21.3% |

The members sum to total revenue.

## Income statement, as filed

| Line | Q3 FY2026 | Of revenue |
|---|---:|---:|
| Net sales | $201.9B | 100% |
|   Net product sales | $75.3B | 37.3% |
|   Net service sales | $126.6B | 62.7% |
| Cost of sales | $94.6B | 46.8% |
| Fulfillment | $30.0B | 14.9% |
| Technology and infrastructure | $34.8B | 17.2% |
| Sales and marketing | $11.6B | 5.8% |
| General and administrative | $2.7B | 1.3% |
| Other operating expense (income), net | (-$134.0M) | 0.1% |
| **Total operating expenses** | $173.9B | 86.1% |
| **Operating income** | $28.1B | 13.9% |
| Interest income | $1.2B | 0.6% |
| Interest expense | ($1.7B) | 0.8% |
| Other income (expense), net | -$703.0M | 0.3% |
| **Total non-operating income (expense)** | -$1.2B | 0.6% |
| **Income before income taxes** | $26.9B | 13.3% |
| Provision for income taxes | ($6.2B) | 3.1% |
| Equity-method investment activity, net of tax | -$4.0M | 0.0% |
| **Net income** | $20.7B | 10.2% |
| Basic earnings per share (in usd per share) | $2 | 0.0% |
| Diluted earnings per share (in usd per share) | $2 | 0.0% |
| Basic (in shares) | 10,797,000,000 |  |
| Diluted (in shares) | 10,929,000,000 |  |

## History

| Period | Revenue | Operating income | Net income | Operating cash flow | Capital expenditure | Free cash flow |
|---|---:|---:|---:|---:|---:|---:|
| FY2007 | $14.8B | $655.0M | $476.0M | $1.4B | $224.0M | $1.2B |
| FY2008 | $19.2B | $842.0M | $645.0M | $1.7B | $333.0M | $1.4B |
| FY2009 | $24.5B | $1.1B | $902.0M | $3.3B | $373.0M | $2.9B |
| FY2010 | $34.2B | $1.4B | $1.2B | $3.5B | $979.0M | $2.5B |
| FY2011 | $48.1B | $862.0M | $631.0M | $3.9B | $1.8B | $2.1B |
| FY2012 | $61.1B | $676.0M | -$39.0M | $4.2B | $3.8B | $395.0M |
| FY2013 | $74.5B | $745.0M | $274.0M | $5.5B | $3.4B | $2.0B |
| FY2014 | $89.0B | $178.0M | -$241.0M | $6.8B | $4.9B | $1.9B |
| FY2015 | $107.0B | $2.2B | $596.0M | $12.0B | $4.6B | $7.5B |
| FY2016 | $136.0B | $4.2B | $2.4B | $17.2B | $7.8B | $9.4B |
| FY2017 | $177.9B | $4.1B | $3.0B | $18.4B | $12.0B | $6.4B |
| FY2018 | $232.9B | $12.4B | $10.1B | $30.7B | $13.4B | $17.3B |
| FY2019 | $280.5B | $14.5B | $11.6B | $38.5B | $16.9B | $21.7B |
| FY2020 | $386.1B | $22.9B | $21.3B | $66.1B | $40.1B | $25.9B |
| FY2021 | $469.8B | $24.9B | $33.4B | $46.3B | $61.1B | -$14.7B |
| FY2022 | $514.0B | $12.2B | -$2.7B | $46.8B | $63.6B | -$16.9B |
| FY2023 | $574.8B | $36.9B | $30.4B | $84.9B | $52.7B | $32.2B |
| FY2024 | $638.0B | $68.6B | $59.2B | $115.9B | $83.0B | $32.9B |
| FY2025 | $716.9B | $80.0B | $77.7B | $139.5B | $131.8B | $7.7B |

Latest trend (the newest full year against the year before; a reading, not a forecast):

- Revenue: +12.4% (year before +11.0%): steady
- Operating income: +16.6% (year before +86.1%): slowing
- Net income: +31.1% (year before +94.7%): slowing
- Free cash flow: -76.6% (year before +2.1%): slowing

## Operating figures stated in the filing

- Contracted commitments not yet recognized (multi-year contracts, mainly AWS): 578,000,000,000 usd (as of 2026-09-30). "those commitments not yet recognized were estimated to be approximately $ 578 billion as of September 30, 2026." (Item 1. Financial Statements)
- Weighted-average remaining life of long-term contracts: 6.1 years (as of 2026-09-30). "The weighted-average remaining life of our long-term contracts is 6.1 years." (Item 1. Financial Statements)
- Energy contracted under derivative-accounted contracts: 690,000,000 megawatt-hours (as of 2026-09-30). "As of September 30, 2026, the energy contract quantities subject to derivative accounting fair value measurements were approximately 690 million megawatt-hours" (Item 1. Financial Statements)
- Weighted-average remaining duration of energy contracts: 18 years (as of 2026-09-30). "the weighted-average remaining duration of these contracts is approximately 18 years" (Item 1. Financial Statements)

## Key insights

### AWS earns 63% of operating income on 23% of sales

AWS was 22.8% of net sales but earned $17.8B of the $28.1B operating income, so the cloud, not the store, carries Amazon's profit.

AWS earned $17.8B of operating income on $46.0B of sales, an operating margin of 38.7%. North America earned $8.7B on $112.9B of sales, 7.7%, and International $1.6B on $43.1B, 3.7%. Of the $28.1B total, AWS supplied 63.3%, North America 31.1% and International 5.6%. _(from the filing)_
The gap is widening in AWS's favor. AWS sales grew 39.3% against 1.6% for online stores, and AWS's share of net sales rose 4.45 points to 22.8%. The filing attributes the growth to "increased customer usage, partially offset by pricing changes primarily driven by long-term customer contracts." _(from the filing)_
Segment margins rest on Amazon's own cost allocation. The filing says the majority of infrastructure costs are allocated to AWS based on usage, and that technology costs fall mainly in North America and AWS. The split is the company's view, not a standalone measure, but the retail segments still earn single-digit margins on more than three quarters of sales. _(analysis)_
Read this way, Amazon is a large store that draws the traffic and a smaller cloud business that produces most of the profit. A shift in AWS demand or pricing now moves group operating income more than a retail change of the same dollar size would. _(analysis)_

### Capital spending ran at 182% of operating cash flow

Capital spending of $77.3B against $42.4B of operating cash flow turned free cash flow to negative $34.8B, from $430M a year earlier.

Operating cash flow rose to $42.4B from $35.5B a year earlier, but capital spending more than doubled, to $77.3B from $35.1B, equal to 38.3% of net sales. The filing says the spending primarily reflects investments in technology infrastructure, "the majority of which is to support AWS business growth", and in fulfillment capacity. _(from the filing)_
Spending has risen each quarter this year, from $44.2B to $54.2B to $77.3B, and free cash flow was negative in each: $18.2B, $8.8B and $34.8B below zero. The company says it expects cash capital expenditures to "meaningfully increase" next year, "primarily driven by investments in technology infrastructure." _(from the filing)_
Borrowing is bridging the gap. Interest expense was $1.7B against $538M a year earlier, up 214.3%, and now equals 142.5% of interest income of $1.2B. The filing ties it to debt, "including new issuances of Notes, and finance leases." _(from the filing)_
Amazon has run this pattern before. In the previous build cycle, capital spending reached $61.1B in one year and free cash flow was negative for two years, at $14.7B and then $16.9B below zero, before returning to $32.2B. _(from the filing)_
The scale is different this time: the peak annual spend of that earlier cycle is smaller than this single quarter's. Whether the old recovery repeats depends on the new capacity filling with paid usage, which the company presents as an expectation, not a certainty. _(analysis)_

### Net income fell 2.4% while operating income rose 61.2%

A year earlier a $10.2B investment gain lifted net income; this quarter other income was a $703M loss, masking a 61.2% rise in operating income.

Operating income rose to $28.1B from $17.4B. Below that line, other income swung from a gain of $10.2B to a loss of $703M, and total non-operating items from a gain of $10.7B to a loss of $1.2B. Income before taxes fell 4.6% to $26.9B and net income fell 2.4% to $20.7B. _(from the filing)_
The filing says the year-earlier gain came "primarily from upward adjustments for observable changes in price relating to our nonvoting preferred stock in Anthropic", together with gains on Anthropic convertible notes converted to preferred stock. It also warns that valuations supporting its strategic investments "could change rapidly." _(from the filing)_
Net income now mixes two different things: what the stores and AWS earn, and the recorded value of stakes in AI companies, which can move either way. The fall in diluted earnings per share, to $1.89 from $1.95, comes from below the operating line. Operating income and cash flow are the cleaner read of the business this year. _(analysis)_

### Services mix did most of the margin work

Of the 4.23-point rise in operating margin to 13.9%, lower cost of sales supplied 2.38 points while services rose to 62.7% of net sales.

Operating margin was 13.9%, up 4.23 points. Cost of sales fell 2.38 points to 46.8% of net sales, other operating expense fell 1.53 points, and sales and marketing fell 0.72 points to 5.8%. Technology and infrastructure moved the other way, up 1.16 points to 17.2% of net sales. _(from the filing)_
Net service sales were $126.6B, 62.7% of net sales against 58.9% a year earlier, while net product sales were $75.3B. Third-party seller services grew 9.4% and online stores 1.6%. Cost of sales consists primarily of the purchase price of products and shipping, which seller fees, advertising and AWS largely do not carry. _(from the filing)_
The filing describes higher cost of sales as driven by product and shipping costs from increased sales, "partially offset by operational efficiencies", and does not split the improvement by cause. Our reading is that the shift toward services explains much of the 2.38-point drop. _(analysis)_
Part of the gain does not repeat. Other operating expense was $134M against $2.9B a year earlier, when it included "the settlement of a lawsuit". That line accounts for 1.53 of the 4.23 points, about 36.2% of the improvement, so the year-on-year comparison flatters the margin change. _(from the filing)_

### Competitive edge

- **One infrastructure base serves the stores and AWS customers** Technology and infrastructure cost grew 20.2%, about half the 39.3% pace of AWS sales, on a base the filing says serves Amazon and outside customers alike.
- **$578B of contracted commitments not yet booked as revenue** Customer commitments not yet recognized total about $578B, mainly AWS, with a 6.1-year average remaining life, so much of the build-out has signed demand behind it.
- **Advertising grows on traffic the store already pays for** Advertising services reached $19.6B, up 10.9%, while sales and marketing spending fell 0.3%, so ad revenue grew without a matching rise in traffic cost.

### What to watch

- **Capacity bought now becomes fixed cost later** This quarter's $77.3B of capital spending is recovered through depreciation in technology and infrastructure, a cost that stays fixed whether or not usage grows into it.
- **Regulators target the lines that lift retail margins** Seller fees of $46.5B and advertising of $19.6B drive the retail profit gains, and both sit inside open antitrust suits and a new advertising complaint.
- **Chip supply and China-based sellers are concentrated dependencies** The AI build relies on a limited group of chip suppliers, and China-based sellers account for significant portions of seller-services and advertising revenue.

## Operating income by segment

- AWS: $17.8B (63.3% of operating income)
- North America: $8.7B (31.1% of operating income)
- International: $1.6B (5.6% of operating income)

## Investor view

**AWS sales grew 39.3%, and this quarter the build-out behind them cost more than Amazon's operations brought in**

### How it makes money

Amazon reports three segments. This quarter North America brought in $112.9B of net sales, International $43.1B and AWS $46.0B, out of $201.9B in total. Services, meaning seller fees, AWS, advertising and subscriptions, were $126.6B of that, or 62.7%, against $75.3B from products Amazon sells itself. _(from the filing)_
The store earns in two ways. Online stores, $68.5B, is goods Amazon owns and sells, recorded at the full price. Third-party seller services, $46.5B, is what other merchants pay to sell on the site: "commissions and any related fulfillment and shipping fees". The second line carries no purchase cost of goods, which is why the mix matters more than the total. _(from the filing)_
The same shoppers fund two more lines. Advertising services, mainly sponsored listings sold to sellers, vendors and brands, were $19.6B. Subscription services, led by Prime membership fees, were $14.0B. Neither needs a warehouse or inventory to grow. _(from the filing)_
AWS sells compute, storage, database and other services to start-ups, enterprises and government agencies. Its costs sit mostly in technology and infrastructure, $34.8B this quarter, because, in the filing's words, "we leverage a shared infrastructure that supports both our internal technology requirements and external sales to AWS customers." The company also says it judges itself on operating income rather than gross margin, given how different its lines are. _(from the filing)_

### What shifted

The mix moved toward AWS. AWS sales rose 39.3% to $46.0B and its share of net sales rose 4.45 points to 22.8%, now larger than the International segment's $43.1B. Online stores grew 1.6% and lost 3.51 points of share. The filing attributes AWS growth to "increased customer usage, partially offset by pricing changes primarily driven by long-term customer contracts." _(from the filing)_
Operating income rose to $28.1B from $17.4B. Of the margin gain, 2.38 points came from cost of sales, which fell to 46.8% of net sales as service revenue outgrew product revenue, and 1.53 points came from other operating expense, $134M against $2.9B a year earlier, when it included "the settlement of a lawsuit". Technology and infrastructure pulled the other way, up 1.16 points to 17.2% of net sales. _(from the filing)_
Net income fell 2.4% to $20.7B even as operating income rose. A year earlier, other income added $10.2B, mostly from "upward adjustments for observable changes in price relating to our nonvoting preferred stock in Anthropic"; this quarter it was a loss of $703M. Interest expense rose to $1.7B from $538M as new notes were issued, and now exceeds interest income of $1.2B. _(from the filing)_
Cash moved the opposite way from operating profit. Operating cash flow was $42.4B, up from $35.5B, but capital spending was $77.3B against $35.1B a year earlier, equal to 38.3% of net sales, "the majority of which is to support AWS business growth". Free cash flow was negative $34.8B, after $430M a year earlier. _(from the filing)_

### Risks in the filing

Capacity is the risk the company describes most concretely. Misjudging demand can leave it with "excess or insufficient fulfillment or data center capacity, service interruptions, increased costs, and impairment charges", and it warns that "A significant portion of our expenses and investments is fixed, and we are not always able to adjust our spending quickly enough if our sales are less than expected." _(from the filing)_
Supply and trade: Amazon relies on "a limited group of suppliers for semiconductor products", including graphics processing units, and says constraints on them could limit its ability to build and run AI services. It also says China-based sellers account for significant portions of its seller-services and advertising revenue, which leaves that revenue exposed to tariffs and trade disputes. _(from the filing)_
Regulation and litigation: the company faces open competition investigations covering its stores, fulfillment network, Prime and parts of AWS; antitrust suits seeking billions of dollars in damages; and a new complaint from the Federal Trade Commission and state attorneys general alleging that reserve prices in its sponsored ad auctions harmed advertisers. It disputes all of them. _(from the filing)_
Investments: the filing warns that valuations behind its strategic investments "could change rapidly" and that it does not control investees' strategy or governance. Its stakes in Anthropic and OpenAI are now large enough that changes in their recorded value move reported net income. _(from the filing)_
Of these, the numbers already show two. The capacity bet is visible in capital spending running well ahead of the cash operations produce, a fixed cost that will arrive as depreciation whether or not demand meets it. The investment-valuation risk is visible in net income falling while operating income rose. _(analysis)_

## Founder view: mechanisms

### Internal infrastructure sold as a product

Amazon built computing capacity for its own stores, then rented the same machines, software and operations to outside customers. One cost base serves both: internal use keeps the infrastructure busy, and external customers pay for the next layer of capacity. The stores get infrastructure cheaper than they could buy it, and AWS gets a demanding first customer that hardens the product before outsiders see it. _(analysis)_

### Fees on other sellers' goods

Amazon earns on goods it never owns. Sellers pay commissions and fulfillment fees, carry the inventory risk and fill the catalog. Each seller added widens selection, which draws shoppers, which draws more sellers. Amazon's own retail stays as the anchor that sets price and delivery standards, while the fee line grows without a matching purchase cost. _(analysis)_

### Advertising on shopping traffic

Shoppers arrive intending to buy, and sellers and brands pay to appear in front of them at that moment. The traffic is already paid for by the retail business, so advertising adds revenue without adding acquisition cost, and it turns suppliers' marketing budgets into Amazon revenue. _(analysis)_

### Signed commitments ahead of capacity

AWS sells multi-year commitments, and that backlog lets the company build data centers before demand reaches revenue. The trade-off is timing: cash leaves now, revenue arrives as customers use the capacity. Debt and leases bridge the gap, so the model depends on the backlog converting on schedule. _(analysis)_

### Membership as the marketing budget

Prime bundles fast shipping, video and other benefits for a fee. Amazon books the cost of those benefits outside sales and marketing but treats them as its main marketing tool. Members pay up front and concentrate their buying where the benefit applies, which lowers what the company needs to spend to win each repeat order. _(analysis)_

## Member research

Signed-in members read, on the page: what Amazon's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- Amazon 10-Q for the period to 2026-09-30: https://www.sec.gov/Archives/edgar/data/1018724/000101872426000040/ (2026-10-30)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-01 · as of 2026-11-01