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.
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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