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It鈥檚 part of normal discussion in Silicon Valley to claim that Amazon makes no money, or even loses money, in the pursuit of growth. But it鈥檚 a trope Amazon bucks on a regular basis for two reasons:

1. It doesn鈥檛 have to lose money on large chunks of its business in the name of growth anymore.
2. It has recently (in terms of the life of its business) added a new operating unit that kicks off profit in increasing sums.

This makes the addition of Whole Foods to its stable of businesses all the more interesting. Grocery stores are notoriously profit-lean. But Amazon鈥檚 profit, as , is perhaps even leaner on a percentage-of-revenue basis. So what impact will the Whole Foods pickup have on Amazon鈥檚 numbers?

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We can figure out the sums some, but only partially. Attempting to precisely predict what Amazon will do with Whole Foods, in terms of new costs, is too speculative even after a 聽Price cuts are the early shots in a longer war.

Amazon In Three Parts

Amazon has three core business reporting units to keep in mind when we discuss its profitability or lack thereof. Its North American sales, its self-described 鈥淚nternational鈥� sales, and AWS, its cloud computing group.

The ecommerce giant reports operating income (otherwise known as profit) for each group, which gives us a decent ruler for results, even though it would be better to have GAAP net income for each. Caveat aside, here鈥檚 what two of Amazon鈥檚 trio managed in its :

• North American sales: $22.37 billion.
• North American operating income: $436 million.
• International sales: $11.49 billion.
• International operating income: -$724 million.

As you can see, the company鈥檚 North American ecommerce business, which is growing, managed to do so while generating operating income, while its international sales appear to come with negative operating margins as they scale. Amazon, famed for its claimed long-term focus, is likely content to watch its domestic (roughly) online sales help subsidize its growth abroad.

AWS, the third of the triplets forming Amazon鈥檚 trivium, is even healthier than the above. It closes the operating income gap formed by its non-domestic ecommerce growth operating losses:

• AWS sales: $4.10 billion.
• AWS operating income: $916 million.

In arithmetical nomenclature: $436 + -$724 + $916 > 0. Therefore, Amazon is above zero in operating terms before we toss in any Whole Foods results.

(In more polite company, we鈥檇 put the preceding as follows: Amazon鈥檚 domestic ecommerce business no longer fully subsidizes its international ecommerce business, as it did, for example, in the year-ago quarter; this makes AWS all the more important as it keeps the company鈥檚 aggregate business operating results in the black.)

Now, let鈥檚 examine the same company, with two additions: Whole Food鈥檚 sales and operating income.

Whole Payback

Now that the Whole Foods deal is done, we should understand what happens when we stack the companies vertically. To do that, we need new numbers.

To get those numbers, we鈥檒l turn to Whole Foods鈥� :

• Whole Foods sales: $3.72 billion.
• Whole Foods operating income: $180 million.

In short, Whole Foods鈥� operating income margin is a touch under 5 percent. But, as , that鈥檚 actually better than Amazon鈥檚 own margin. From that we can understand that the addition of Whole Foods to Amazon鈥檚 stable鈥攖urning its Three鈥檚 Company into a quartet鈥�may actually improve Amazon鈥檚 aggregate operating margin.

So does the addition of Whole Foods make real change to the Amazon model? Kind of. Amazon is so much larger than Whole Foods that the addition of that $180 million in operating income is only so useful.

Recall our prior formula for Amazon: $436 + -$724 + $916 > 0. That equation works out to $628 million in operating income. Now, let鈥檚 run the calculations with Whole Food鈥檚 stronger operating margins, but smaller operating income: $436 + -$724 +916 +180 = $808 million.

If the increase to $808 million actually changes a damn thing at Amazon isn鈥檛 clear. Sure, it鈥檚 a 29 percent increase in operating income off a 9 or 10 percent change in revenue. But, that the 鈭� buys Amazon much material latitude to change how it invests in other business seems like a stretch of an idea.

This becomes doubly true now that Amazon is already cutting prices at Whole Foods. We can therefore anticipate a negative impact to Whole Foods鈥� operating income. This will lower the impact that Whole Foods has on Amazon鈥檚 operating income and aggregate operating margin.

So, summing gently, it looks likely that whatever real profit Amazon grinds out of Whole Foods will be small, and it will perhaps spread inside of other business units (such as more Prime memberships). It鈥檚 also important to bear in mind that Amazon already generates operational income. Whole Foods is a minnow compared to the Seattle giant, and its profit is peanuts compared to those of its new overlord.

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