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Amazon is worth so much because AWS is tech’s true unicorn

28 April 2017

From MarketWatch:

Amazon.com Inc. is thought of by most consumers as the Wal-Mart of the web, a dominant retailer with convenience and pricing advantages that will be hard to beat.

But that business is not the sole reason Amazon was headed for fresh record highs and a market capitalization of more than $450 billion after Thursday’s earnings report. In fact, the e-commerce business may not even be the main reason why Amazon is worth so much right now, just as it definitely is not the main reason for Amazon’s recent journey into solid profitability.

Amazon Web Services, which sells remote computing power to businesses, was again the star of Amazon’s earnings report, despite being a major concern for investors heading into the report thanks to a decelerating growth rate and rumors that a price war with cloud rivals would shrink profits.

However, on the same day that two of those rivals also released earnings, Amazon showed why AWS is the most valuable startup in tech. The company reported quarterly AWS revenue of $3.66 billion, slightly topping estimates and reflecting 42.6% growth, and operating income of $890 million. That net profit margin of more than 24% was actually higher than the year-ago quarter, wiping away more fears.

Amazon’s total operating income for the quarter was $1.01 billion. While it doesn’t take a math wizard to see that Amazon would not be anywhere near as profitable without AWS, here is the figure: AWS accounted for about 89% of Amazon’s total operating income for the quarter, with the rest attributable to e-commerce.

. . . .

When Amazon stock hits new records Friday, internet commenters and television pundits will rant about the high price-to-earnings ratio and unsustainable valuation. But when you add a company that could be considered the most valuable technology startup in a world full of valuable tech startups, to a web retailer with the scale and reach of Amazon, it shouldn’t be that hard to figure out why this company is worth so much.

Link to the rest at MarketWatch


14 Comments to “Amazon is worth so much because AWS is tech’s true unicorn”

  1. Give The Guardian five minutes and they’ll tell us why this is a ‘bad’ thing …

  2. Meanwhile, Jeff Bezos continues to sink billions into more infrastructure for Amazon, same as ever; it’s just that AWS provides some protective profit-making camouflage so everyone stops badmouthing him for being unable to make a consistent profit.

    It does seem like you hear fewer Seeking Alpha analysts crying loudly to anyone who will listen that they need to start shorting Amazon because it can’t keep going without making profits and must surely collapse sooner or later. At least one such pundit who was shorting Amazon himself in 2013 now avows he holds no position in the stock. I wonder how much he lost?

    • “I wonder how much he lost?”


      He’s the cat in the green hat! 😉

    • @ Chris

      “I wonder how much he lost?”

      More than just money, I’ll wager. Credibility, too, which is critical to a consultant’s continuing success.

      Just look at Shatz’s weaving and dodging, trying to straddle both sides of the line, talking out of both sides of his mouth! Not sure how well that’s working out for him! 🙂

    • Note the investors in Amazon stock aren’t complaining about profits. They have made lots of money.

      AWS is an Amazon profit. They took cash flow from other operations, and invested it in AWS. The alternative was to send that same cash flow to profit and keep non-investors happy.

      Amazon attracts investors who think the profit Amazon can make by investing its cash flow is greater than the profit the investor can make by investing a dividend from Amazon. The people who are not attracted to that type of investment don’t matter.

  3. Amazon stock is still up as of this writing (2:41 pm), but way down from its high today. Probably folks taking profits.

  4. ZDNET has a nice summary on how the top three Cloud players stack up moving forward:


    Bottom line:

    AWS is tops on infrastructure and is moving up into the “stack” (applications like databases, etc). Meaning: better margins. More $$$$$.

    Microsoft actually makes more money than AWS because they are stronger in the stack (Office 365 prints money) despite smaller infrastucture base.

    Google runs third. A lot of talk. Less results.

    (Oracle and IBM are players. Sort-of. Mostly legacy hostage clients. IBM in particular is in trouble. Apple knows the cloud is a thing but doesn’t care.)

    Oh, Bezos is $5B or about one fiscal quarter from passing Gates as the richest in the world. Gates is eagerly awaiting the day.

    • I’m not so sure about IBM being in trouble. They are flopping around, I admit, but I know quite a few IBM engineers who get the cloud on a level that no one else approaches. Clouds are close to IBM visions for 30 years ago that never materialized. For what it’s worth, IBM has the brain power to top them all, but they argue points today that won’t matter for three years. In the mean time, they flounder.

      • Felix J. Torres

        The IBM staff understands the cloud but that doesn’t mean management does. And as you said, they are floundering.
        Zdnet agrees:


        As they point out, IBM’s cloud is (like Oracle’s) primarily about legacy apps and big iron replacement. They have virtually no presence with small and medium business which is where Cloud computing makes the most sense. (The big boys spend enough that a private cloud makes at least as much sense. It’s the old lease vs buy equation.)

        Small and medium is also where AWS and Microsoft are strongest and these days there is more money there than in legacy.

        IBM has a small window of opportunity to make itself relevant to the entire market before it becomes a niche and a takeover target for, ironically, account control purposes.

  5. There is a connection between Amazon retail and AWS. Without AWS, Amazon retail would have folded long ago, but it has nothing to do with AWS revenue. Amazon retail is totally dependent on the technology in AWS for servicing their customers. All other big online retailers are equally. Actually, most technology enterprise today depends on AWS innovations.

    Amazon itself is almost certainly AWS’s biggest customer, although we will never know. AWS started as a way for Amazon to sell off the excess computing capacity that they had to build in order to service their customers during peak periods. AWS is a by-product of Amazon retail.

    I consider Amazon to be the single most significant innovator of the 21st Century. Their retail is amazing, but AWS has changed the way computing works, affecting almost every technology of the 21st Century.

    I apologize for being breathless, but Amazon is hard to believe.

    • Though treating the various Amazon databases and their interrelationships as black boxes, it can be fascinating watching how factoids travel around.

      As a publisher, I can watch the proliferation of a new KDP cover (once approved by KDP, it first turns up in the Look Inside of the book, but not on the book’s product page itself for another day or two, nor as a visible product image for AMS ads.) That speaks worlds about some of the syncing of massive amounts of data that goes on.

      The only reason some updates of content (editorial reviews, book content, etc.) can take 72 hours is that they must cross some fixed batch update windows as the data moves from one system to another. The volume must be mindboggling, esp. if something goes wrong.

    • Felix J. Torres

      No need to apologize: they are indeed shockingly effective with their multi-pronged aporoach. Just don’t leave Lab126 or Kiva out of the mix. AWS is the enabler of the Amazon that is but Lab126 and Kiva are the enablers for the Amazon that is coming.

      Alexa is only part of the equation but it shows where their thinking is. (Where Google is focusing on giving their asistant more data depth, Amazon is giving Alexa a bigger reach by taking it into computer vision applications and licensing out the sensors.)

      Strange things are coming once all those disparate efforts combine. There’s a hidden synergy they’re aiming at.

      I think Bezos is looking to (seriously!) build MULTIVAC. 🙂

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