How AMZN (Amazon.com) Makes Money in 2025: A Deep-Dive With Income Statement

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Understanding how a technology and retail giant like AMZN (Amazon) makes money is essential for investors and anyone interested in the business of e-commerce, cloud computing, and digital advertising. In this post, we break down AMZN's quarterly income statement (Q3 2025) using a Sankey chart to visualize the financial flows — what comes in, where it goes, and what's left as profit.

Quick AMZN Overview

Amazon operates a diversified business model spanning e-commerce, cloud computing (AWS), third-party seller services, and digital advertising. Its main products and services include online retail, Amazon Web Services (AWS), marketplace facilitation, and advertising solutions. Revenue comes from direct online sales, commissions and fees from third-party sellers, cloud infrastructure services, and digital ad placements. The company also segments its business into Online Stores, Third-Party Seller Services, AWS, Advertising Services, and Other.

Revenue Breakdown

• Total Revenue (Q3 2025): $180.2B (+13.4% YoY)
  • Online Stores Revenue: $67.4B (37.4% of total, +9.8% YoY)
  • Third-Party (3P) Seller Services: $42.5B (23.6% of total, +12.2% YoY)
  • AWS Revenue: $33.0B (18.3% of total, +20.2% YoY)
  • Advertising Services Revenue: $17.7B (9.8% of total, +23.5% YoY)
  • Other: $19.6B
• Growth is powered by AWS cloud expansion, surging advertising demand, and steady marketplace growth.

Gross Profit and Margins

• Gross Profit: $99.2B (55.1% gross margin)
  • Cost of Revenue: $81.0B (flat YoY)
  • Amazon maintains robust margins due to its scalable digital business model and operational efficiencies in AWS and advertising.
• Most costs come from fulfillment, technology infrastructure, and content acquisition.

Operating Income and Expenses

• Operating Income: $17.4B (9.7% margin)
• Operating Expenses: $60.5B
  • R&D: $22.2B (12.3% of revenue) — Focused on cloud innovation, AI, logistics automation, and device development
  • SG&A: $14.6B (+9.3% YoY, 8.1% of revenue) — Includes marketing, general corporate overhead, and sales support
  • Amazon continues to prioritize innovation and invest in growth while maintaining efficiency across its expanding operations.

Net Income

• Pre-Tax Income: $18.0B (10.0% margin)
• Income Tax: $2.71B (15.0% effective tax rate)
• Net Income: $15.3B (8.5% net margin)
• Amazon converts a significant portion of sales into profit due to its scalability, pricing power, and operational discipline.

What Drives Amazon's Money Machine?

• AWS Cloud Services: 18.3% of revenue, but a much higher share of operating profit due to premium margins
• Marketplace Network Effect: Third-party seller services account for 23.6% of revenue, driven by transaction fees and fulfillment services
• Advertising Platform: Advertising services grew 23.5% YoY, now nearly 10% of total revenue, leveraging Amazon’s vast retail data
• Strategic Investments: Heavy R&D in AI, logistics, and cloud infrastructure
• Future Growth Areas: International expansion, healthcare, and generative AI, though not yet profitable

Visualizing Amazon's Financial Flows

The Sankey chart below visualizes how each dollar flows from gross revenue, through costs and expenses, down to net income. This helps investors spot where value is created, what areas weigh on profits, and how efficiently the company operates.

• Most revenue flows into gross profit, with operating expenses (especially R&D and SG&A) taking the largest chunk.
• Even after large investments in technology and logistics, 8.5% of revenue drops to the bottom line.

Key Takeaways

• Amazon's money comes overwhelmingly from online retail, third-party marketplace fees, AWS cloud services, and digital advertising
• High gross and net margins illustrate the power of Amazon’s scalable, diversified business model
• Heavy investment in cloud and AI R&D, balanced by efficiency in operating costs
• Ongoing growth is driven by cloud adoption, advertising demand, and marketplace expansion

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FAQ About Amazon's Income Statement

1. What is the main source of Amazon's revenue in 2025?

Amazon generates over 37% of its revenue from Online Stores, with significant contributions from Third-Party Seller Services 24%, AWS Cloud 18%, and Advertising 10%.

2. How profitable is Amazon in Q3 2025?

Amazon reported net income of $15.3B in Q3 2025, with a net margin of approximately 8.5%, reflecting strong profitability driven by AWS and advertising growth.

3. What are the largest expense categories for Amazon?

The biggest expenses on Amazon's income statement are operating expenses, particularly Research & Development (R&D) at $22.2B and Sales, General & Administrative (SG&A) at $14.6B in Q3 2025, as Amazon prioritizes cloud, AI, and logistics innovation.

4. Why does AWS operate at a higher margin than retail?

AWS, despite generating $33.0B in revenue, posts much higher operating margins than retail because Amazon aggressively invests in cloud infrastructure and software, which scale efficiently and command premium pricing, driving long-term profit growth.

5. How does Amazon's effective tax rate compare to previous years?

Amazon's effective tax rate in Q3 2025 was 15%, consistent with previous years. This moderate rate is primarily due to international structuring and tax benefits from share-based compensation.