Third-party merchants drive Amazon revenue

amazonHalf of all product sales made by Amazon worldwide are now made by third-party merchants, according to the latest Fung Global Retail & Technology report.

Despite a 27 percent year-over-year increase in worldwide revenues in 2016, the bulk of e-tailer’s profitability ironically does not derive from the direct sales of its goods to consumers, according to the report.

Instead, Fung said a growing contribution from its cloud computing subsidiary is driving profitability, even as revenues from third-party sellers now exceed sales made by the company directly.

“Amazon declared total worldwide revenues of $136 billion in 2016, and some $90 billion of that came from the U.S,” said Deborah Weinswig, manager director, Fung Global Retail & Technology.

“But these revenues tell only part of the story because so many of the sales transacted on Amazon are made by third-party sellers, for which Amazon books only commission.

“Moreover, Amazon’s stated revenues include its Amazon Web Services cloud-computing business.”

With an estimated $98 billion worth of goods sold in the U.S. in 2016 (including sales by third-party sellers), Amazon is the fourth largest retailer in the country. The average U.S. adult spent just over $412 with the company last year. Driving those sales, at least in part, was Amazon Prime: An estimated 42 percent of all U.S. adults and 55 percent of all millennials are Prime members.

Fully half of all product sales made by Amazon worldwide are now made by third-party merchants. For these third-party sales, Amazon’s commission is typically about 15 percent of the purchase price. The company also can generate additional fees by storing and dispatching the inventory for these sellers. These fees are supporting the strengthening of Amazon’s profitability.

The company’s profitability also is being driven by Amazon Web Services (AWS), a subsidiary that provides on-demand cloud-computing platforms to individuals and companies. Its 25 percent operating margin exceeds those for all of Amazon’s product-selling businesses, even though AWS contributed just 9 percent of Amazon’s total revenue last year, the report says.

“The segment is expected to continue growing its share of total revenue, so its contribution to group margins will continue to grow,” said Weinswig.

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