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Amazon hints at sales figures for AWS (qz.com)
25 points by donohoe 1465 days ago | hide | past | web | 21 comments | favorite



Given that this is revenue, and given that Amazon has a "market-share-or-death" pricing model for margins, this really tells you nothing about AWS's profitability. It could be running at a loss (it wouldn't surprise me.)

I'd be much more bullish on Amazon as an investor if they gave any guidance as to when they will actually start taking profits. There's just something that feels wrong investing in a company that very well may never become profitable in my lifetime and whose share price will just float on hope for a day that will never come.

I still think Amazon is an amazing company, but their approach to providing shareholder value (the role of a public corporation) is definitely a little unorthodox.


As an AMZN shareholder for years, I guess I think of it the other way: I own shares because I believe they provide value to me and society via service and bringing about efficiency, and I as a proud shareholder am evaluating them in such a metric, opposed to quarterly earnings numbers.


Matt Yglesias was right! I thought he was just being satirical.

> Amazon, as best I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers.

http://www.slate.com/blogs/moneybox/2013/01/29/amazon_q4_pro...


Right I guess the point I'm making is that once Amazon is forced to raise margins, will they still be Amazon? If Amazon never raises margins, what's the investment thesis? Something has to give.

The main theory is that Amazon is building up such a wide economic moat that consumers are going to be willing to put up with higher prices or competitors will still never be able to beat them on margins even when they start to take profits. This is a pretty huge bet.


I think AWS is a classic case of economies of scale enabling profitability outside the reach of smaller companies. The AWS R&D get's reused for there internal systems driving down the costs of running there internal systems. So even if AWS only breaks even it's still a net win for the company.


Everybody says AWS has so low margins. I don't really get it. There are really number of other providers who are much cheaper. Just see here - http://www.cloudorado.com/ . If AWS has so low margin, what margins have others?


As an AWS user, it's nice to see them continually lower the prices of their offerings (presumably due to efficiencies of scale). Still, that's not something I'm really used to, from anyone. Is it truly cheaper to service me, or is there something else at play?


Yes, it's cheaper. RAM, disk space, etc. continue to decrease in price, and as they get bigger and bigger I'd expect they're seeing better wholesale rates on those sorts of items as well.

S3 launched 7 years ago at $0.15/GB. It's now $0.095/GB, down about a third. The cost of storage per gigabyte went down dramatically more than that during that time.


Not to mention that the actual machines behind those instance types have probably fully depreciated and paid for themselves by now -- if they're replacing them, it's to save on power.


Making money isn't difficult for Amazon. They earned $1.1 billion on $34b in sales for 2010, without much apparent effort toward profitability. They've demonstrated at various times that they can generate profit at will.

Clearly Bezos believes it's far more valuable here and now to invest into winning market segments like AWS or digital content (eg streaming vs Netflix) or competing in tablets.

With $61b in sales for fiscal 2012, I don't think it would be surprising if they could generate $3 or $4 billion in profit on that basis, with a strict focus on that. They're obviously never going to be a profit machine however, not without Walmart-like scale.

The numbers don't look good for future returns off of the $116 billion market cap. If you assume they have a great decade and reach $150 billion in sales, with 5% margins, that's $7.5 billion in profit - they'd be fairly valued today on a profit projection seven years out. Shareholders can expect exceptionally low returns on average over the coming years.


I guess the question is where do you draw the line wrt "investing for the future." It's like the guy who works in his cave on a project and won't release it until it's perfect.

I find it amazing that people have the patience to wait for AMZN to generate profits when a company like AAPL is sitting there generating more profit in a single quarter than all of Amazon's historical profit combined. What good is having the last laugh if you are already dead? Just how discounted are future cash flows that have no known realization date? You really can't trust the market to be more patient than you are, there is nothing keeping the stock up other than buyers being more patient for profits than sellers.

I mean, I get it from a CEO perspective, Bezos enjoys having his company eat up entire markets, best his competitors, and have millions of happy customers, and he's already rich. I'm just talking about the value proposition for investors.


The people who don't really matter that much. If there is total net generated wealth, I don't really see what's so bad even if it does hurt the investors. Up to a point.


Maybe not off that market cap but from everything I've read, Bezos and the Amazon leadership isn't focused on market cap. They're making a tidy profit, even if it's not as much as you or the market might want, and are running a great business. That might be enough for them.


AWS is of course huge, but many forget that Rackspace is in the same order of magnitude at $1.3b yearly revenue last year and growing about 24%.

Source: http://finance.yahoo.com/q/ks?s=rax


I've heard from the CEO of a large company that partners with Amazon a very similar figure for the revenue of AWS.

From the same source, I've heard that some services Amazon.com relies on runs on competitors' infrastructure, even though AWS offers the same service, and no, not as a backup service but as the primary solution for that particular service.


They were using Akamai and not CloudFront last time I checked (which was a while ago). And of course they must have legacy systems that were built before their in-house solutions were available.


Whomever changed the Headline - thank you. Its much clearer than my abbreviated one (original waaay too long)


Philosophical question: For companies that are conglomerates, or at least have very different business units (like Amazon or GE or Microsoft), should those companies be required by law to break out their earnings by major division?


Impossible to enforce - companies are free to shift things around internally to produce any numbers they want, as long as the totals are correct.


VMWare reported twice as much revenue as (is derived for) AWS for the recent quarter. AWS is cheaper, but even so, I'm trying to wrap my mind around how that's possible.


VMWare makes money on support and integration, AWS on volume.

Amazon has historically taken their competitors to the cleaners on margins, especially the dead tree publishers.




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