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The orange line above depicts what Amazon’s operating income would be without the Amazon Web Services cloud division. The blue bars show the company’s operating income as reported.

Amazon has compiled a run of record profits over the last few years. There’s a perception that the highly profitable, market-leading Amazon Web Services cloud division has been the sole force behind this trend, consistently pulling the company into the black and subsidizing the traditionally narrow margins of retail.

Jay Carney, Amazon’s senior vice president of global corporate affairs, pushed back against that assumption at the 2019 Geekwire Summit last week. He agreed that cloud computing is a more profitable business than retail. However, he was adamant that the retail arm is profitable on its own and doesn’t need the company’s cloud business or other initiatives to prop it up.

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“Our other businesses do not fund the retail business,” Carney said. “The margins are smaller; we’ve been making that point for a long time. It gets highly competitive and retail is always a matter of very slim margins, but Amazon is successful on its own as a retailer and competes accordingly.”

To verify this, we checked the numbers, and here’s what we found: If you look back several years, most recently 2017, AWS was responsible for pretty much all operating profit company-wide. However, over the last two years that trend has changed. While AWS remains responsible for a majority of the company’s overall operating profits, the rest of the business has landed in the black consistently on its own.

Remove AWS from the equation, and the rest of Amazon has turned an operating profit for the last seven quarters. The margins have risen significantly on both a quarterly basis and year-over-year rate over the last two years.

The second quarter this year saw the first year-over-year decline in operating profits, both company-wide and after subtracting AWS, since the third quarter of 2017. The company fell short of Wall Street’s profit expectations in the second quarter as Amazon continued to plow money into its ambitious plan to make one-day delivery its new shipping standard.

These types of issues are becoming more important as regulators and legislators pay closer attention to the financial and market clout of Amazon and other tech giants. Speaking to the company’s retail market share, Carney noted that Amazon represents less than 4 percent of the overall retail market in the United States and less than 1 percent globally. He asserted that this combined view of physical and digital retail is the relevant market, rather than looking specifically at online retail sales, where the company has about 37 percent share of the U.S. market.

We’ll continue to watch the underlying trends in operating profits when Amazon discloses its third quarter results next week, on Thursday, Oct. 24.

Earlier this week, Recode reported that Amazon is making it easier for customers to buy low-priced items with free one-day shipping “in a way that seems unprofitable.”

There are still some things we don’t know about Amazon’s recent run of profits. It is unclear if the retail business is becoming more profitable, or if another growing arm of the company, such as advertising, is pumping up the bottom line. The company doesn’t break out operating income for individual businesses, except for AWS.

Some analysts see huge potential in Amazon’s advertising business. More than a year ago, Piper Jaffray predicted advertising will supplant AWS as the company’s leading profit driver by 2021.

“While the Street has been focusing on the trajectory of core retail, growth of AWS, and new categories such as grocery & pharma, Amazon’s advertising business has been quietly growing into a massive driver of current and future profitability,” Piper Jaffray analyst Michael Olson wrote in a note to clients, reported by CNBC at the time. “By 2021, we believe it is likely that advertising operating income will exceed AWS. … Investors should be focused on Amazon advertising now; this is a major driver to results and valuation today and continuing in the coming quarters & years.”

It remains to be seen if that will come true, but for now AWS is a profit machine for Amazon, even as other parts of the business grow. The cloud division has accounted for at least 50 percent of Amazon’s operating income in every quarter over the last five years.

But, with growing evidence that the rest of Amazon is becoming stronger financially apart from the cloud division, perhaps the company will finally consider spinning off AWS, as some observers have suggested for years.

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