Don't be fooled. Amazon's international business is more profitable than you think

But it's still blowing a hole in the bottom line.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Amazon (NASDAQ: AMZN) has operated outside of North America for nearly 25 years, but the company is still losing tons of money abroad.

Its international segment, which is primarily made up of e-commerce sales outside of North America, has lost $5.5 billion through the first three quarters of 2022, and has been in the red for much of its history.

At a time when Amazon stock seems to be in freefall, it's easy to place the blame on the international business and the other unprofitable businesses like it. The company has long prized growth above profitability, and founder Jeff Bezos instilled a culture of managing the business for the long term, placing relatively little value on short-term profits. 

However, there's more to the international business than meets the eye. Although the segment is losing money, it's not as if Amazon is failing in every country it operates in. In fact, there's an opportunity for the company to significantly boost its profitability by streamlining its business in international markets, and the market seems to be ignoring it.

A mix of markets

Amazon operates local sites in over a dozen countries, but some international markets are much more mature than others. 

For example, it has operated in the UK since 1998, but it just launched a local site in Belgium in the third quarter. On the earnings call, CFO Brian Olsavsky explained why the company is losing so much money this year in the international segment:

[I]nternational is always a mix of profitability in more established countries of Europe and Japan, offset by emerging countries and investments in Prime benefits. I think the biggest issue quarter over quarter, [is that] the increase in losses versus Q2 was tied to some additional operating costs in Europe. We've seen higher fuel costs there, even more certainly in the United States.

He also said that Prime Day sales tend to lead to losses, as the company sells a lot of devices for the shopping holiday, which it generally sells at cost to then create a profit stream through selling content on those devices.

But it's worth taking stock of Olsavsky's statement. Amazon isn't profitable because it's incapable of turning a profit abroad. Instead, the company continues to invest in growth by adding Prime benefits in these countries and pouring billions into emerging markets like India, which Bezos sees as a generational bet.

Is it time for restraint?

Although Amazon has more control over its international business than it might seem, that doesn't change the fact that it has still lost more than $5 billion from the segment this year, and much more than that over its history.

With overall revenue growth slowing to single digits and its core e-commerce businesses losing money in both the North America and International segments, Amazon is tightening its belt like never before. The company has paused hiring in divisions, including corporate retail and Amazon Web Services. It's also pulling the plug on experiments like Amazon Care, its telehealth and in-person healthcare initiative, and Scout, its delivery robot. 

With the international segment burning $2.5 billion in the most recent quarter, it may be time for some belt-tightening abroad as well. 

Amazon has built a huge business outside of North America, with revenue on track to top $100 billion this year, but it's not worth much if it can't turn a profit there. Whether its investments in countries like Belgium and India will pay off still remains to be seen.

It may not be so easy for Amazon to flip the profitability lever in the international sector, as it's not going to pull out of the markets it's already operating in. But finding a way to improve the bottom line in the international segment would go a long way toward improving the company's overall financial picture.

The good news is the company is in the middle of a cost-cutting review that's likely to slash at least some expenses in international markets, which seems ripe for such an opportunity. With Amazon already losing over $5 billion in that segment this year, cutting billions in expenses could send the stock soaring, especially as it's down 50% from its peak last year.

With that in mind, investors would be wise to buy the stock now before the impact of those moves shows up on the bottom line.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Amazon. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon. The Motley Fool Australia has recommended Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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