The world's most dominant e-commerce and cloud computing platform — Amazon's AWS, advertising, and retail flywheel generate $78B in net income with operating leverage accelerating
Bill Ackman
Pershing Square Capital Management
Est. ~12.9% of total portfolio
“Bill Ackman: 'Amazon is three great businesses in one. AWS alone would be one of the most valuable companies in the world. The advertising business is growing into a profit machine. And the marketplace generates enormous customer loyalty through Prime.'”
The Business
- Amazon.com operates the world's largest e-commerce marketplace, Amazon Web Services (AWS, #1 cloud platform), and a top-3 digital advertising business
- The company's Prime membership program (200M+ members) drives loyalty through free shipping, streaming (Prime Video), and exclusive deals
- AWS provides cloud computing, storage, AI/ML services, and database solutions to millions of customers, generating the majority of operating profits
- FY2025: $717B revenue, $78B net income, 11% operating margin, with 1.5M+ employees globally
Why They Own It
“Bill Ackman: 'Amazon is three great businesses in one. AWS alone would be one of the most valuable companies in the world. The advertising business is growing into a profit machine. And the marketplace generates enormous customer loyalty through Prime.'”
- Amazon operates three world-class businesses: e-commerce marketplace (#1 globally), AWS cloud (#1 with 32% share), and advertising (#3 behind Google and Meta)
- FY2025: $717B revenue (+12%), $78B net income (+31%), 11% operating margins — operating leverage is accelerating
- AWS is the profit engine: ~$100B annual run rate with ~30% margins, powering the AI revolution's cloud infrastructure needs
- 200M+ Prime members create a subscription flywheel: fast shipping drives loyalty, which drives marketplace volume, which attracts sellers
- The advertising business ($60B+ revenue) monetizes purchase-intent data — the highest-value ad inventory outside of Google Search
What the investor sees
Amazon trades at approximately $200/share with a ~$2.1T market cap, or roughly 27x FY2025 earnings. Ackman sees this as a fair price for a business with Amazon's quality. AWS alone is arguably worth $1T+ as a standalone (30% margins on $100B+ revenue), and the advertising business at $60B+ is worth hundreds of billions. The retail marketplace, while lower margin, generates massive cash flow and provides the data and customer relationships that power advertising. Free cash flow was compressed to $7.7B in FY2025 due to heavy AI/infrastructure capex, but normalized FCF power is $50B+.
Financial Snapshot
$717B
revenue FY2025
$78B
net income
$7.17
eps
11.2%
operating margin
$7.7B (capex-heavy)
free cash flow
12% YoY
revenue growth
~$100B+ run rate
aws revenue
200M+
prime members
The Moat
- Prime flywheel — 200M+ subscribers create massive switching costs through shipping, streaming, and shopping convenience
- AWS market leadership — 32% cloud market share with the broadest service portfolio, creating deep customer lock-in
- Logistics infrastructure — $100B+ invested in fulfillment and delivery networks creating same-day/next-day delivery that competitors cannot match
- Marketplace network effects — millions of sellers attract buyers, and more buyers attract more sellers
- Advertising data advantage — purchase-intent data from the marketplace enables highly targeted, high-ROI advertising
What Could Go Wrong
Heavy capex — $75B+ in annual capital expenditure for cloud, AI, and logistics infrastructure compresses free cash flow
Regulatory and antitrust risk — FTC lawsuit and global regulatory scrutiny could force structural changes
AWS competition — Microsoft Azure and Google Cloud are growing faster and gaining share in certain workloads
Margin pressure in retail — e-commerce margins remain thin and can be squeezed by competition and logistics costs
Labor relations — 1.5M+ employees face unionization efforts and wage pressure
Catalysts
- AI-driven AWS growth — enterprise AI workloads driving accelerated cloud migration and new AWS services
- Advertising revenue growth — purchase-intent ads growing 20%+ annually with high margins
- Operating leverage — as infrastructure investments mature, margins expanding toward 15%+
- International e-commerce profitability — growing markets in India, Brazil, and other regions approaching profitability inflection
- Free cash flow normalization — as capex intensity moderates, FCF could reach $50B+ annually
In Their Own Words
“Bill Ackman: 'We look for businesses with wide moats and long runways. Amazon's competitive advantages — scale, data, logistics, cloud infrastructure — are nearly impossible to replicate.'”
“Bill Ackman: 'The operating leverage in Amazon's business is finally showing up. As infrastructure investments mature, margins are expanding and the free cash flow potential is enormous.'”