Few companies can build on the kind of year Amazon.com (AMZN 1.30%) had in 2017, yet there are many good reasons to think this year will be its best one yet. The great thing about Amazon's business is that it has so many avenues for profiting.
Let's take a look at a few of them to see why they work together to contribute as a whole. Although Amazon itself divides its business into just two lines -- product sales and service sales -- we can get a bit more granular than that to see why this business is booming and will continue to do so in the future.
One reason UPS and FedEx should be worried. Image source: Amazon.com.
E-commerce
The original reason for Amazon's existence still dominates the business. In 2017, the online retailer generated $118.6 billion in product sales, a 25% increase from the year before. While that comprises all the things Amazon sells online, including groceries, if we just look at the Christmas holidays, we see why Amazon owns the space.
Amazon accounted for half of all online sales in the U.S. during the two-month shopping period between November and December. The National Retail Foundation says that total holiday sales jumped 5.5% year over year to $692 billion and that online sales accounted for 20% of that amount, or $169 billion, up 11.5% from 2016.
Amazon's own Echo Dot home assistant was the best-selling device of any product from any manufacturer, with all Alexa-enabled devices selling tens of millions of units worldwide. The Echo now controls some 70% of the voice-enabled speaker market, while Google reportedly has a quarter share. Apple's (AAPL 0.64%) HomePod has only just hit the market, and it remains to be seen what kind of impact it will have.
Groceries
Amazon's Prime Fresh grocery service has been around for a while now, but the acquisition of Whole Foods Market last year really magnified its presence, rocking established supermarkets like Kroger (KR -2.28%) and even Walmart (WMT -1.75%). The former is now exploring numerous avenues for delivering more products to people -- including looking into online partnerships that could fundamentally alter the way it does business -- while the latter's recent earnings exhibited the wear and tear associated with going up against Amazon.
Walmart reported only a 24% increase in U.S. online sales after it had booked better than 50% growth during the three previous quarters. It's now going to focus more attention on its own branded website rather than on promoting Jet.com.
The fourth quarter was the first full quarter that Amazon has owned Whole Foods, and it delivered about $4.52 billion in sales, some 7% of the company's total revenue. As it expands the grocer and ties it into its Prime member loyalty program, the potential for stratospheric growth becomes apparent.
Image source: Amazon.com.
Business services
What might have seemed an odd side business when it was launched, Amazon Web Services (AWS) is now Amazon's profit center. While e-commerce operations in North America generated operating income of $2.8 billion, Amazon's international e-commerce business lost over $3 billion. AWS, on the other hand, generated $4.3 billion in operating income in 2017, on $17.5 billion in sales. In other words, all of Amazon's operating profits derive from AWS.
Analysts were expecting Amazon Web Services to overtake IBM and Microsoft to become the largest cloud computing provider, and it will likely remain the leader, posting 45% revenue growth in the fourth quarter.
Only scratching the surface
There is so much more to Amazon than the few areas outlined above. For example, it's about to take on UPS and FedEx in package delivery; it continues to build out its streaming services, both in music and movies, where it is getting deeper into content creation; and there's its latest venture, dipping its feet into healthcare.
Sure, 2017 was a great year for Amazon.com, but 2018 will prove to be its best. That is, until 2019 rolls around.
