Let's talk about Amazon's (AMZN -3.29%) revenue and operating income streams for the fourth quarter of 2022. The company collected a heart-stopping $149.2 billion in top-line sales in that period -- achieving in a single quarter what only a handful of business titans can do in a year. Still, the bulk of its profits come from a fairly small revenue flow that once was a humble experiment.
Here's a handy look at Amazon's sales contributors. You'll find that Amazon is the online retail giant you always thought it was, but also so much more.
First let's deal with the elephants in the room. Online stores and third-party seller services add up to two-thirds of Amazon's total revenue. If all you want is a torrential flow of low-margin sales, Amazon's e-commerce operations are hard to beat.
But it's important to remember that Amazon isn't just an e-commerce giant. In fact, many people don't seem to realize that Amazon's cloud computing services (Amazon Web Services, or AWS) are arguably even more important.
It's easy to see why investors might miss it, of course. AWS provided just 14% of Amazon's total fourth-quarter revenue. And in terms of operating income, AWS is really crushing it, reporting a strong profit in Q4 2022.
In a period where Amazon as a whole saw an operating profit of $2.7 billion, AWS delivered $5.2 billion on that line. The rest of the company operated at a $2.5 billion operating loss. Furthermore, AWS is expanding its top-line sales faster than any other Amazon division, except the tiny "other" segment. It's clear that Amazon's nearly two decades of investment in cloud computing are paying off big time.
Beyond e-commerce
While Amazon is still primarily known for its e-commerce operations, its business model is evolving. Cloud computing services are a major force to be reckoned with, and growing more important year by year. AWS is arguably the most important part of Amazon's business nowadays, and it's clear that the company's commitment to this idea is paying off in the long run.
To put this division's value into perspective, consider that AWS delivered 20% year-over-year revenue growth while the flagship e-commerce business saw falling sales instead. But the company still pulled out a modest operating profit entirely thanks to the lucrative AWS segment, and the overall revenue trend still looks like this:
AMZN Revenue (TTM) data by YCharts
Amazon's secret sauce
Even in hard times, with an inflation-based economic crisis and tight consumer budgets, Amazon keeps delivering double-digit sales growth and the top line is only accelerating its long-term growth trend. AWS plays a major part in that success story, lifting its weight in terms of direct sales growth while also financing Amazon's forward-looking investments. There probably wouldn't be a same-day Prime delivery network yet if the sweet AWS dollars weren't there to boost the infrastructure investment, for example.
AWS isn't the entire recipe for Amazon's secret sauce, but it's a key ingredient of this company's high-octane rocket fuel. I see unstoppable long-haul growth in Amazon's willingness to take risks and explore unproven ideas. Those risks are balanced out by the e-commerce division's massive revenue generator and the robust financial platform it built. Amazon had $69.9 billion of cash reserves and short-term investments at the end of 2022, giving Amazon the financial freedom to try unconventional ideas -- like a free shipping system or a cloud computing service.
Some of those outrageous lightbulb moments turn out to be big winners in the long run. That's one of the many reasons why I want to own this stock for decades.
