It's too much to say that it's the greatest story never told, but this week Amazon's (AMZN) so-called service division will finally get its public due.
Traditionally, of course, Amazon made its chops in their retail business, selling everything from books to electronics and nearly everything in between. They were a regular old store of mostly commodity products (you could get most elsewhere), with all the thin margins that implies, only online. A few years ago, though, Amazon started 3P, their approximation of eBay's online bazaar, essentially positioning Amazon as the landlord of a virtual shopping mall. Amazon does not have to stock inventory, a burden of an obligation, which obviously heightens Amazon's cost structure. Instead, vendors use Amazon's 3P as a venue to meet buyers-and vice versa. No inventory needed.
Margins are more flush.
Last quarter, for example, 3P made up a good portion-well over a third-of Amazon's profits, despite the fact that it accounted for less than one-tenth of Amazon's sales. It's growing gangbusters, though. Extrapolating the top-line Amazon's growth of Amazon's 3P and harnessing it to eBay's considerably good earnings report last week and a triple-digit growth rate is hardly beyond the pale of reason.
But old habits die-hard and traders and the media still think of Amazon too much as a straight-up peddler of nearly profitless goods. Don't forget, too, that Amazon is not a pillar of disclosure. They can be vague to the point of distraction, claiming products sold great, but offering no statistical fill-out. Last quarter, though, for the very first time, Amazon distinguished results from their old-line products division and their far more exciting service side. They know their business is turning for the better and want you to see it. This week, with the second earnings report sign that Amazon is onto something good, lasting and more profitable, many traders finally will.