Do not be fooled. Amazon’s international business is more profitable than you think.

Amazon (AMZN -2.34%) has operated outside of North America for nearly 25 years, but the company still loses tons of money overseas.

Its international segment, which consists primarily of e-commerce sales outside of North America, lost $5.5 billion through the first three quarters of 2022 and has been in the red for much of its history.

At a time when Amazon stock seems to be in freefall, it’s easy to blame its international business and similar unprofitable businesses. The company has long prioritized growth over profitability, and founder Jeff Bezos has instilled a culture of running the company over the long term, with relatively little value in short-term gains.

However, international business has more to offer than meets the eye. Though the segment is losing money, it’s not as if Amazon is failing in every country in which it operates. In fact, there is an opportunity for the company to significantly increase its profitability by streamlining its business in international markets, and the market seems to be ignoring it.

An employee at an Amazon fulfillment center.

Image source: Amazon.

A mix of markets

Amazon operates local websites in over a dozen countries, but some international markets are much more mature than others.

For example, the company has been active in the UK since 1998 but only launched a local website in Belgium in the third quarter. On the earnings call, CFO Brian Olsavsky explained why the company is losing so much money in the international segment this year:

[I]International is always a mix of profitability in the more established countries of Europe and Japan, balanced by emerging markets and investment in prime benefits. I think the biggest problem quarter after quarter, [is that] The increase in losses from Q2 came with some additional operating costs in Europe. We’ve seen higher fuel costs there, even safer in the United States.

He also said that Prime Day sales tend to be loss-making as the company sells a lot of devices for holiday shopping, which it generally sells at cost, to then generate a stream of profits by selling content on those devices.

But it is worth considering Olsavsky’s statement. Amazon is not profitable because it cannot make a profit abroad. Instead, the company continues to invest in growth by adding Prime benefits in those countries and investing billions in emerging markets like India, which Bezos sees as a generational bet.

Is it time for restraint?

While Amazon has more control over its international business than it might seem, that doesn’t change the fact that it’s still lost more than $5 billion from the segment this year, and way more than that in his story.

As overall sales growth slows to single digits and its core e-commerce businesses lose money in both the North American and international segments, Amazon is tightening its belt like never before. The company has suspended hiring in businesses including Corporate Retail and Amazon Web Services. It’s also pulling the plug on experiments like Amazon Care, its telehealth and personal health initiative, and Scout, its delivery robot.

With the international segment burning $2.5 billion last quarter, it might be time to tighten its belts overseas as well.

Amazon has built a massive business outside of North America, with sales expected to top $100 billion this year, but it’s not worth much if it can’t turn a profit there. It remains to be seen whether investments in countries like Belgium and India will pay off.

It may not be easy for Amazon to turn its profitability levers in the international sector, since it won’t exit markets it already operates in. But finding a way to improve the bottom line in the international segment would take a long way to improve the overall financial picture of the company.

The good news is that the company is in the midst of a cost-cutting review that’s likely to cut at least some spending in international markets that seem ripe for such an opportunity. With Amazon already losing over $5 billion in this segment this year, the billions in spending cuts could send the stock soaring, especially since it’s down 50% from its peak last year.

With that in mind, investors would be wise to buy the stock now, before the impact of these moves has an impact on the bottom line.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions at Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.

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