Skip to content
The Founder's Notes

Compare

The template only earns its keep if you actually put two cases next to each other.

This is the reason every teardown answers the same questions in the same order. Put a luxury house beside a console platform and the differences stop being vibes — one is refusing sales to protect a price, the other is selling below cost to collect a toll, and both are defending a moat.

Retail · NASDAQ: COST

Costco

A membership warehouse club that sells a deliberately tiny range of goods at a capped markup, pays its staff above the market, and makes most of its actual profit from the annual fee.

Technology · NASDAQ: AMZN

Amazon

Runs a near-breakeven retail operation at enormous scale, and earns essentially all of its profit from renting out the two things that operation forced it to build — computing capacity and shelf placement.

The thesis in one line

Costco is not a retailer that charges a fee. It is a fee that happens to run a retailer, at cost, to justify itself.
The store is not the business. The store is the customer acquisition cost for the businesses.

Verdict

Watch it
Own it

Moat

Wide

Scale economics · Counter-positioning · Brand

Wide

Scale economics · Network effects · Process power · Switching costs

Porter's five forces

Competitive rivalry
Threat of new entrants
Threat of substitutes
Buyer power
Supplier power
Competitive rivalry
Threat of new entrants
Threat of substitutes
Buyer power
Supplier power

Headline figures

Revenue
≈ $254.5B
Membership fees
≈ $4.8B
Markup cap
14%
Hot dog and soda
$1.50
Net sales
$638B
AWS share of operating income
~58%
Retail operating margin
~5.4%
Third-party share of units
~60%

Unit economics

One Gold Star member, one year, FY2024 averages

The member's $3,300 of shopping earns Costco about as much as the $65 card does. That is the model in one line: the shopping is the reason to renew, and the renewal is the profit. It also explains why the markup cap is not generosity — a higher margin on the goods would raise this year's profit and lower next year's renewal rate, and the second number is the one Costco is actually managing.

One $50 third-party item sold through Amazon

Amazon captures roughly 38% of the sale price and carries none of the inventory risk. The seller took the risk, paid for the warehouse, and then paid again to be found in a search of Amazon's own catalogue.

What would change her mind

If worldwide renewal falls below 88% for two consecutive years after the fee rise, the fee has found its ceiling and the model has less headroom than the multiple assumes. In the other direction: if Costco's own delivery and app reach a meaningful share of sales while renewal holds above 90%, then the trip was never the moat, the trust was — and the price is fair after all.
If AWS revenue growth falls below 15% for two consecutive quarters while segment operating margin also declines, the cloud business is being commoditised rather than merely contested, and the capex is being spent defending share rather than buying growth. That combination — decelerating growth and compressing margin at the same time — breaks the thesis outright. A single weak quarter on either measure alone does not.

1 mechanism in common

loss leader funding