Introduction
Amazon Web Services (AWS) generated 18% of Amazon's net sales in 2025, $128.7 billion of $716.9 billion. It generated 57% of Amazon's operating income, $45.6 billion of $80.0 billion, at an operating margin of about 35%, against margins of about 7% in North America and 3% in Amazon's international businesses. Those figures do not appear on the face of the income statement. They come from the segment note in Amazon's 2025 annual report, and they explain most of how investors value the company.
The segment note is where a diversified company shows its results business by business. For bankers, it is one of the most useful notes in a 10-K and the starting point for understanding where profits come from, which parts of a company are growing and how a sum-of-the-parts valuation might compare with the market value of the whole.
The Management Approach
Segment reporting under US generally accepted accounting principles (GAAP), in Accounting Standards Codification (ASC) Topic 280, follows the management approach. Companies report the operating segments that their chief operating decision maker uses to allocate resources and assess performance, measured the way that person sees them. The segments are therefore whatever the company's internal reporting says they are: product lines, geographies, customer types or a mix.
- Chief operating decision maker
The function, an individual such as the chief executive or a group such as an executive committee, that allocates resources to and assesses the performance of a company's operating segments. Under ASC 280, the information regularly reviewed by the chief operating decision maker determines which operating segments a company reports and how their results are measured.
The approach has an advantage and a cost. The advantage is that investors see the business through management's eyes, with the profit measures management actually uses. The cost is that segment results are not standardized: they may allocate shared costs differently from peers, exclude items such as stock-based compensation or amortization, and change when the company reorganizes. A segment profit measure that departs from the consolidated GAAP figures is not classed as a non-GAAP measure, because the standard requires it, but it needs reading with the same care. Amazon, for example, allocates the technology and infrastructure costs that support AWS to that segment based on usage, a choice that directly shapes AWS's reported margin.
Which Segments Are Reported
Not every operating segment has to be reported separately. Segments with similar economic characteristics can be aggregated only if they are also similar in every one of a list of qualitative features, such as products, production processes, customers and distribution methods, a test the Securities and Exchange Commission staff applies strictly. A segment must be reported if its revenue (including sales to other segments) or its assets reach 10% of the combined total for all operating segments, or if its profit or loss reaches 10% of the greater of the combined profits of the profitable segments and the combined losses of the loss-making ones. Enough segments must then be reported to cover at least 75% of the company's external revenue, as Deloitte's roadmap on the 75 percent test explains. The rest are combined in an "all other" category.
What the Note Discloses
For each reportable segment, companies disclose revenue, a measure of profit or loss and total assets (or the reason no asset information is given), plus items such as depreciation and capital expenditure when the chief operating decision maker reviews them. Since fiscal years beginning after December 15, 2023, the disclosures have expanded. Public companies must now disclose the significant segment expenses regularly provided to the chief operating decision maker, the other segment items that bridge them to segment profit, the title of the chief operating decision maker and how that person uses the profit measures. Companies may report more than one measure of segment profit, provided one of them is the measure most consistent with the measurement principles of the consolidated statements, and companies with a single segment must give the same detail.
Entity-Wide Disclosures
The note also contains entity-wide disclosures that apply whatever the segment structure: revenue by product or service group, revenue and long-lived assets by country or region and, for any customer providing 10% or more of revenue, the amount of that revenue and the segments involved. Finally, it reconciles total segment revenue, profit and assets to the consolidated figures, with the unallocated corporate costs and eliminations shown separately.
Amazon's Segments
Amazon's segment figures show what the disclosures reveal:
| Segment, 2025 | Net sales, $ billions | Operating income, $ billions | Operating margin | Share of operating income |
|---|---|---|---|---|
| North America | 426.3 | 29.6 | 6.9% | 37% |
| International | 161.9 | 4.8 | 2.9% | 6% |
| AWS | 128.7 | 45.6 | 35.4% | 57% |
| Total | 716.9 | 80.0 | 11.2% | 100% |
The segment detail also shows growth by business. AWS sales grew about 20% in 2025 and its operating income about 14%, while North America's operating income grew about 19%. A consolidated margin of 11.2% blends a cloud business with software-like margins and a retail business with retail margins, and neither can be understood from the consolidated figures alone.
Reading the Note Over Time
Segment structures change when companies reorganize, and each change restates history on the new basis, usually for the periods presented. Microsoft announced in August 2024 that it would move the commercial components of Microsoft 365 into its Productivity and Business Processes segment from fiscal 2025, aligning its reporting with how it now managed the business, and recast its three prior fiscal years on the new basis. Any growth rate for those segments calculated across the change, using figures from older reports, compares two different businesses. Restating history helps comparability over the restated years but can break longer trends and hide the performance of a business that has been combined with another. A change in segments just before a business weakens, or one that folds a struggling unit into a larger segment, is worth noticing, which is why frequent changes appear among the patterns in accounting red flags.
The new expense disclosures add a layer of analysis. Where the chief operating decision maker receives a breakdown of costs by segment, companies now disclose it, which lets analysts see, for example, whether a segment's margin improvement came from cost of sales or from overhead. Where the chief operating decision maker reviews only total segment expenses, as Amazon describes, the disclosure stays at that level. The depth of the note therefore depends on the company's internal reporting as much as on the rules.
Segment Assets and Returns
Where companies disclose assets, depreciation and capital spending by segment, the note also shows where capital is going and what it earns. Amazon's AWS segment assets rose from $156.0 billion at the end of 2024 to $252.6 billion a year later, mainly property and equipment for data centers, and depreciation charged to AWS rose from $13.3 billion to $21.5 billion. Dividing AWS operating income by its average segment assets gives a return of about 22% in 2025, down from about 30% the year before: the business earned more, but on a much larger asset base built ahead of expected demand. That is the kind of trend the consolidated statements blur and the segment note makes visible, and it connects directly to the measures in return ratios: ROE, ROA and ROIC.
How Bankers Use the Segment Note
The segment note supports several kinds of work. In valuation, it is the basis for a sum-of-the-parts analysis, in which each segment is valued with the multiples of its own peers; for Amazon, applying cloud multiples to AWS and retail multiples to the rest gives a very different answer from applying one multiple to the whole. In comparable company analysis, segment figures let bankers compare a division of a conglomerate with focused competitors. And in mergers and acquisitions, the note gives a first view of a business a client might buy or sell, before carve-out figures exist, the step described in carve-out financial statements.
The segment note also feeds the broader analysis of a company's statements. Growth and margin trends by segment explain the consolidated trends; capital expenditure and assets by segment show where the company is investing; and geographic revenue shows exposure to currencies and regions. Read together with the business description and the management discussion, it is often the most informative single note in an annual report, and a central step in any analysis of a diversified company's statements.
