Oppenheimer expects the company to focus on new tools and services that make it easier for enterprises to adopt AWS. Last year’s conference focused on higher margin software and applications, as opposed to processing and hardware.
Furthermore, the firm believes this year’s focus will be on new software and apps, with continued examples of large enterprises going “all-in” with the AWS cloud, and that the next two years will see very strong volume growth, as Amazon is focused on accelerating enterprise adoption.
AWS likely will focus on vast system integrator relationships, which help transition workloads to the cloud. Since large price cuts have been muted for the past 18 months, Oppenheimer believes there is a 70% chance of a 10% to 20% EC2 price cut. Oppenheimer views minor price cuts (10% or less) as a positive for Amazon shares.
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Oppenheimer believes a large focus of AWS is enabling the shift to the public cloud using three levers:
- Accelerating the pace of innovation
- Competitive pricing
- Fostering a community of system integrators
In 2014, AWS introduced over 500 new features — compared to about 250 in 2013 — to give enterprises an easy-to-use, secure outsourced IT option. The firm expects AWS to announce a similar number of features introduced in 2014 and to highlight incremental use cases.
Thousands of system integrators have built businesses on top of AWS’s infrastructure, with a dozen or so of scale. Oppenheimer believes AWS will highlight these channel partners, which are critical links to adoption.
In its report, Oppenheimer said:
We believe AWS can grow revenue 55% per year for the next four years, assuming 20% price cuts across the board annually. Notably, we do not believe AWS needs to cut prices given its market-leading position, but has followed Google’s lead down the price curve recently. Regardless, we believe AWS will report EBIT in the mid-20% range by 2016 and be free cash flow breakeven by 2018. We assume third quarter revenue +85% year over year.
Share of Amazon were up 2.8% to $510.25 Wednesday morning. The stock has a consensus analyst price target of $647.63 and a 52-week trading range of $284.00 to $580.57.
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