Amazon and Google are the two best new-age companies right now. They are among the top-4 most valuable companies in the world, along with Apple and Microsoft. In this article, we will do a detailed analysis of Amazon and Alphabet (parent company of Google) revenues and profits. Firstly, we will look at the Amazon and Alphabet revenues and net profits during the last 16 years from 2001 to 2016. Then, we will look at Amazon revenues and profits during 2016 by business segments, geographic segments, and product groups. Then, we will look at Alphabet revenues and profits during 2016 by business segments and geographic segments. Finally, we will conclude with our commentary on who has a better chance of winning the race for the most valuable company in the world.
First a quick note about Alphabet because many people may not have heard about Alphabet but most online users know Google. Alphabet is the parent company of Google. On August 10, 2015, Google founders announced the creation of Alphabet to contain the companies that are far afield of their main Internet products. All those businesses are referred to as ‘Other Bets’. Alphabet reports revenues and operating profits for the following two segments: Google Segment and Other Bets. Alphabet started reporting ‘Other Bets’ revenue from 2015. During 2015, Google segment contributed 99.5% to Alphabet total revenues and Other Bets contributed the remaining 0.5%.
Amazon vs Google / Alphabet – Revenues 2001 to 2016
Amazon generated $3.1 billion of revenues during 2001. Google was a much smaller company than Amazon during 2001. Google had revenues of $0.1 billion in 2001.
During 2016, Amazon generated $136.0 billion of revenues. Alphabet reported $90.3 billion of revenues in 2016.
Both the companies have been growing in double digits for the past several years. Amazon is leading the revenue growth race.
Amazon vs Google / Alphabet – Net Profits 2001 to 2016
Amazon reported a net loss of -$0.6 billion during 2001. Even though Google was a much smaller company, it was still profitable. Google reported a net profit of $0.007 billion in 2001.
During 2016, Amazon had a net profit of $2.4 billion. Alphabet reported a net profit of $19.5 billion in 2016.
Amazon net profit margins have either been negative or in the lower single digits from 2001 to 2016. In contrast, Google/Alphabet have reported net profit margins in twenties for the past several years.
Amazon 2016 Revenues and Profits by Business Segments, Geographic Segments, and Product Groups
Amazon reports its revenues for the following business segments: North America, International, and AWS. Here is a brief description of these business segments:
The North America segment consists primarily of amounts earned from retail sales of consumer products (including from sellers) and subscriptions through North America-focused websites such as www.amazon.com, www.amazon.ca, and www.amazon.com.mx. This segment includes export sales from these websites.
The International segment consists primarily of amounts earned from retail sales of consumer products (including from sellers) and subscriptions through internationally-focused websites such as www.amazon.com.au, www.amazon.com.br, www.amazon.cn, www.amazon.fr, www.amazon.de, www.amazon.in, www.amazon.it, www.amazon.co.jp, www.amazon.nl, www.amazon.es, and www.amazon.co.uk. This segment includes export sales from these internationally-focused websites (including export sales from these sites to customers in the U.S., Mexico, and Canada), but excludes export sales from North American websites.
The Amazon Web Services (AWS) segment consists of amounts earned from global sales of compute, storage, database, and other AWS service offerings for start-ups, enterprises, government agencies, and academic institutions.
Amazon Business Segments Revenues 2016
Of the $136.0 billion of total net sales in 2016, Amazon generated:
- $79.8 billion, 58.7% of the total, from the North America segment;
- $44.0 billion, 32.3% of the total, from the International segment; and
- $12.2 billion, 9.0% of the total, from the Amazon Web Services (AWS) segment.
Amazon Business Segments Operating Profits 2016
The operating income and operating margin of the Amazon business segments during 2016 is provided as follows:
- North America segment had a segment operating income of $2.4 billion and a segment operating margin of 3.0%.
- International segment had a segment operating income of -$1.3 billion and a segment operating margin of -2.9%.
- AWS segment had a segment operating income of $3.1 billion and a segment operating margin of 25.4%.
Amazon Product Groups Revenue 2016
Amazon also reports revenues as per product groups. Amazon has the following product groups: Retail products, Retail third-party seller services, Retail subscription services, AWS, and Other. Here is a brief description of these product groups:
Retail Products. It includes product sales and digital media content sold on a transactional basis. Amazon offers a wide selection of consumable and durable goods that includes electronics and general merchandise as well as media products available in both a physical and digital format, such as books, music, video, games, and software.
Retail third-party seller services. It includes commissions, related fulfillment and shipping fees, and other third-party seller services.
Retail subscription services. It includes annual and monthly fees associated with Amazon Prime membership, as well as audiobook, e-book, digital video, digital music, and other subscription services.
AWS. It refers to Amazon Web Services segment.
Other. It includes sales not otherwise included above, such as certain advertising services and Amazon co-branded credit card agreements.
Of the $136.0 billion of net sales in 2015, Amazon generated:
- $91.4 billion, 67.2% of the total, from the Retail Products group;
- $23.0 billion, 16.9% of the total, from the Retail Third-party Seller Services;
- $6.4 billion, 4.7% of the total, from the Retail Subscription Services;
- $12.2 billion, 9.0% of the total, from AWS; and
- $3.0 billion, 3.0% of the total, from Other.
Amazon Geographic Segments Revenue 2016
Of the $136 billion of net sales in 2016, Amazon generated:
- $90.3 billion, 66.4% of the total, from the United States;
- $14.1 billion, 10.4% of the total, from Germany;
- $9.5 billion, 7.0% of the total, from the United Kingdom;
- $11.0 billion, 7.9% of the total, from Japan; and
- $11.1 billion, 8.2% of the total, from Rest of the World.
Alphabet 2016 Revenues and Profits by Business Segments and Geographic Segments
Alphabet reports its revenues for the following business segments: Google Segment and Other Bets. Here is a brief description of these business segments:
Google Segment. It includes their main Internet products such as Search, Ads, Commerce, Maps, YouTube, Google Cloud, Android, Chrome, and Google Play as well as their hardware initiatives. Google generates revenues primarily from advertising, sales of digital content, apps and cloud offerings, and sales of hardware products.
Other Bets. It is a combination of multiple operating segments that are not individually material. Other Bets includes businesses such as Access, Calico, CapitalG, GV, Nest, Verily, Waymo, and X. Revenues from the Other Bets are derived primarily through the sales of Internet and TV services through Google Fiber, sales of Nest products and services, and licensing and R&D services through Verily.
Alphabet Business Segments Revenues 2016
During 2016, Alphabet generated a total of $90.3 billion of revenues. Of these, Alphabet generated:
- $89.5 billion, 99.1% of the total, from the Google segment; and
- $0.8 billion, 0.9% of the total, from ‘Other Bets’.
Alphabet Business Segments Operating Profits 2016
The operating income and operating margin of the Alphabet business segments during is provided as follows:
- Google segment had a segment operating income of $28.0 billion and a segment operating margin of 31.2%;
- Others Bets had a segment operating income of -$3.6 billion and a segment operating margin of -446.2%.
Google Segment Revenues 2016
Google Segment generates revenue primarily by selling online advertising over Google owned and operated properties and over Google Network member’ websites.
Google properties revenues consist primarily of advertising revenue that is generated on:
- Google search properties. This includes revenue from traffic generated by search distribution partners who use Google.com as their default search in browsers, toolbars, etc.;
- Other Google owned and operated properties like Gmail, Maps, and Google Play; and
- YouTube, including but not limited to, YouTube TrueView and Google Preferred.
Google Network Members’ properties revenues consist primarily of advertising revenues generated from ads placed on Google Network Member properties through:
- AdSense (such as AdSense for Search, AdSense for Content, etc.);
- AdMob; and
- DoubleClick AdExchange.
Google Segment also earns revenue from sources other than advertising. Other revenues consist primarily of revenues and sales from:
- Apps, in-app purchases, and digital content in the Google Play store;
- Licensing-related revenue; and
- Service fees received for Google Cloud offerings.
Of the Google Segment total revenues of $89.5 billion in 2016, Google Segment generated:
- $79.4 billion, 88.7% of the Google Segment total revenues, from advertising; and
- $10.1 billion, 11.3% of the Google Segment total revenues, from Other.
Of the total advertising revenue $79.4 billion in 2016, Google Segment generated:
- $63.8 billion, 71.3% of the Google Segment total revenues, from Google Properties; and
- $15.6 billion, 17.4% of the Google Segment total revenues, from Google Network Members’ Properties.
Alphabet Geographic Segments Revenue 2016
Of the $90.3 billion of total revenues in 2016, Alphabet generated:
- $42.8 billion, 47.4% of the total, from the United States;
- $7.8 billion, 8.6% of the total, from the United Kingdom; and
- $39.7 billion, 44.0% of the total, from Rest of the World.
Amazon vs Google – Who will be the winner?
At present, Apple is the most valuable company in the world. Google, Microsoft, and Amazon hold the second, third, and fourth positions respectively. Between Amazon and Google, who has a better chance of winning the race to become the most valuable company?
If we look at the overall revenue and revenue growth, Amazon is winning. But, if we look the overall net profits and net profit margins, Alphabet is winning.
Let us get into details. Alphabet currently earns 99% of its revenues from Google segment. Google segment further earns 89% of its revenues from advertising and rest of 11% from sales of digital content, apps and cloud offerings, and sales of hardware products. Google segment is highly profitable right now and Other Bets is losing more money than what it makes. Will Other Bets become profitable in future? Probably yes.
Amazon earns 89% from retail sales and services, 9% from AWS, and 2% from others. Amazon is investing in International expansion. So, International segment operating margins are negative. US segment operating margins are in lower single digits. AWS is generating good operating profits, but contributes little to the overall revenues.
In the future, can Google beat Amazon in revenues? Probably yes. This is because Google is not much behind Amazon in revenue growth. Higher revenue growth in future will translate into higher revenues and hence more profits.
In the future, can Amazon beat Google in profits? Probably no. This is because of the cost structure of Amazon. Google has much lesser operating costs than Amazon. That translates into higher operating profits and net profits.
So, as per our analysis and understanding, Google will be the winner.
What are we missing?