Amazon 2Q'26: AWS Gets the Love
In 1Q’26 earnings coverage of Amazon, I mentioned AWS would likely grow by ~35% in 2Q’26. AWS did slightly better than that as it grew by ~37%! For a $169 Billion run-rate business, AWS growth certainly seems mind boggling.
I will talk more about AWS later, but as I typically do every quarter, I will first start with non-AWS segments of Amazon.
Ex-AWS, Amazon’s North America and International segments margin trajectory were a bit underwhelming. International segment’s operating margin was flat YoY and even though it may seem North America’s operating margin expanded YoY, it includes $600 million tariff related refund. Excluding such impact, North America’s operating margin declined by 18 bps YoY.
If you look at worldwide paid unit growth vs shipping+ fulfillment cost growth, you would notice that the latter used to consistently outpace the former pretty much all the time since 2015 until 3Q’22. Since then, unit growth has largely been faster than shipping+ fulfillment costs, indicating operating leverage in their logistics footprint. In 2Q’26, however, these lines converged at 17%. However, during the call management mentioned excluding the impact of higher fuel and linehaul rates, shipping cost would grow more slowly than unit growth “at a pace that is relatively consistent with last quarter.” That likely means the operating leverage theme still has further legs here once or if fuel costs come down.
A big driver for retail profitability is advertising. Given Amazon ads are perhaps more of a competitor to Google than Meta, I pay close attention to Amazon’s incremental share in advertising compared to Google Advertising. Last quarter, I wondered if Amazon is giving some share back to Google. That concern has evaporated by 2Q’26 numbers as Amazon’s incremental revenue share as a percentage of Google Advertising share went back to the long-term trend of ~40% following a dip in 1Q’26.
Okay, enough about non-AWS business. Let’s get into AWS related discussion and my rationale to make some portfolio changes which will be behind the paywall.
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