During the last three months of 2017 Amazon’s revenue from third-party seller services was $10.5 billion. For the first time surpassing $10 billion in a quarter. For the full year it was $31.8 billion.
Amazon defines it as “commissions, related fulfillment and shipping fees, and other third-party seller services.” Third-party seller services is a proxy to how well the marketplace is doing since Amazon does not report sales of the marketplace.
It is easy to misunderstand the scale of Amazon’s marketplace since the company reports so little on it. The $31.8 billion in fees in a year is why most analysts estimate it at over $100 billion in GMV.
Revenue from the marketplace grew 38% last quarter, more than twice the first-party retail sales rate of 17%. Amazon doesn’t break out operating income by revenue source, but the marketplace is believed to be one of the most profitable segments.
Sellers also contributed to the $1.7 billion in other revenue, which is assumed to mostly consist of advertising. Advertising was “a key contributor” to the increased profit margin. North America segment’s operating margin of 4.5% was the highest in a couple of years.
“Advertising was also a key contributor as we’re continuing to make the offerings more valuable, both to customers and advertisers alike, and that was particularly strong in North America, although not in the North America segment.
And on advertising, I would say our strategy is to make the customer experience additive by the ad process. We want customers to be able to see new brands and have easier time discovering products that they’re looking for. For brands, we think the value proposition is that we can find ways for them, especially emerging brands, to reach new customers. So we’re working with advertisers of all types and sizes to help them reach our customer base and the goal of driving brand awareness, discovery and better purchase decisions by the customer.”
– Brian Olsavsky, Senior VP & CFO of Amazon
As a result amazon posted a record profit of $1.9 billion, making it the 11th straight profitable quarter.
The increasing profit is a distraction though. Relative to net sales Amazon’s profits are modest. The company continues to invest into new initiatives like the international expansion. India is likely the primary focus. There, as Olsavsky pointed out, “more Prime members joined India’s Prime program in the first year than we’ve seen in any other country in the history of the world, our world.”
Last year Amazon marketplace attracted more than one million new sellers, and saw the launch of Australia, and expansion in Brazil beyond books. Overall 51% of units sold came from the marketplace, often enabled by the Fulfillment by Amazon (FBA) service. 2017 was a great year.
