This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Key Points
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Amazon's retail engine is slowing.
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Advertising is quietly gaining momentum.
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Amazon's integrated ecosystem is a competitive moat.
Amazon (NASDAQ: AMZN) is one of the most important businesses of the internet era -- and arguably still not clearly understood.
Many still view it as an e-commerce company. But beneath the surface, Amazon has quietly built up a multiengine empire, spanning cloud computing, advertising, and entertainment.
This article will explore one of Amazon's underappreciated strengths and one real risk that long-term investors should keep in mind.
Red flag: E-commerce growth is slowing, and margins remain thin
For years, Amazon's e-commerce has been its bedrock for growth, slowly capturing market share from offline retailers and other incumbents. It has been wildly successful, making it a giant of its own.
But here's the thing: For all its dominance, Amazon's core e-commerce business is maturing. Worse, it is increasingly facing pressure on multiple fronts, and that's reflected in its recent numbers.
In the second quarter of 2025, North America segment sales rose just 8% year over year while the international segment's revenue grew by only 5%. That's a far cry from the breakneck growth rates of the 2010s. More concerning, the company's core commerce revenue (online sales, physical stores, and third-party services) grew at around 5% to 6%, much lower than the numbers above after excluding advertising and subscription revenue.
And despite its gigantic size -- net sales reached $126 billion in the first quarter of 2025 -- it had an operating profit of just $6.8 billion, or 5.4%. That margin might be acceptable for a grocery store. But for a tech giant with massive infrastructure costs, it limits how much the retail engine can contribute to long-term earnings power.
To make things tougher, Amazon faces growing competition from low-cost, well-positioned challengers like Temu and Shein. These newcomers are leveraging ultra-lean supply chains and social virality to win younger consumers -- and they're increasingly encroaching on categories like apparel, beauty, and home goods.
The silver lining? Amazon isn't standing still. Its logistics network is becoming more efficient, with faster delivery speeds and lower costs per package. It's also pushing hard on its own low-cost e-commerce (Amazon Haul) to overcome Temu and Shein.
Still, investors will want to see Amazon prove it can sustain even modest growth -- and expand margins over time for its commerce segment. Otherwise, this red flag could remain a drag on the stock, even as other business lines post better numbers.
Green flag: Amazon's advertising business is quietly exploding
If retail is showing signs of fatigue, advertising might be Amazon's next growth engine.
In Q1 2025, Amazon's ad revenue jumped 18% year over year to $13.9 billion, making it one of the largest digital advertising platforms globally. Moreover, advertising is a high-margin business, meaning it may eventually contribute more to the bottom line than the retail business.
What makes Amazon ads unique isn't just impressions. It's intent. Amazon reaches customers at the moment they're ready to buy -- giving it higher conversion rates than search or social platforms. And with its massive trove of first-party purchase data, Amazon offers brands a powerful platform for targeted marketing.
But advertising doesn't end on Amazon's shopping sites. The recent move to introduce ads in Prime Video has opened a new chapter. With hundreds of millions of global Prime members, Amazon now runs one of the largest ad-supported streaming platforms in the world.
Even Google and Meta Platforms can't fully match this.
That's because Amazon owns the entire customer journey -- from ad exposure, to product search, to purchase -- all within its ecosystem. This closed-loop attribution model allows brands to track precisely how ads turn into sales.
For example, a user might see a product placement on Prime Video, tap an ad on their Fire TV, and complete the purchase on Amazon's app -- all while feeding Amazon's flywheel of shopping and behavioral data. That kind of end-to-end visibility is gold for marketers.
What does it mean for investors?
Amazon isn't just an e-commerce company anymore.
While retail remains a critical piece of its empire, it's becoming clearer that Amazon's long-term profit engine will come from high-margin businesses like cloud computing and advertising. In particular, the ad business is gaining real momentum, with unique advantages that could drive years of growth.
Yes, retail faces challenges. But if Amazon can stabilize commerce and let other faster-growing segments do the heavy lifting, the stock could still compound over time.
For long-term investors, understanding which parts of Amazon are growing -- and which are not -- may be the key to seeing the company's future.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
