Amazon.com Inc. (NASDAQ: AMZN) likely had a home-run holiday, taking great chunks of business from e-commerce companies and further cementing its position as the segment’s leader. It also has about two-thirds of the cloud computing market, according to recent research, a number that will show up in its earnings.
Research at KeyBanc reported that Amazon Web Services had 62% of the cloud market last year, followed by Microsoft Corp. (NASDAQ: MSFT) at 20%. Its cloud business is called Azure. KeyBanc said that AWS lost a small amount of share last year, but its lead is still insurmountable for the foreseeable future.
The news could hardly be better for Amazon founder Jeff Bezos and his company’s shareholders. Amazon’s North American and International e-commerce divisions barely make money in many quarters. AWS has impressive margins. For Amazon as a whole to post strong earnings, AWS has to continue to grow and keep big margins.
Amazon will post its fourth-quarter 2017 results soon. They will show that it grew sharply again in what is always its largest quarter in terms of revenue. When Amazon posted third-quarter results, management forecast:
Fourth Quarter 2017 Guidance
- Net sales are expected to be between $56.0 billion and $60.5 billion, or to grow between 28% and 38% compared with fourth quarter 2016. This guidance includes approximately 1,000 basis points of impact to our year-over-year growth rate from Whole Foods Market. This guidance also anticipates a favorable impact of approximately $1.2 billion or 270 basis points from foreign exchange rates.
- Operating income is expected to be between $300 million and $1.65 billion, compared with $1.3 billion in fourth quarter 2016.
- This guidance assumes, among other things, that no additional business acquisitions, investments, restructurings, or legal settlements are concluded.
AWS could easily be $6 billion of the total. Its operating income could be $1.5 billion, or close to 100% of Amazon’s operating bottom line.
How much does Amazon need AWS? For some investors, the answer is that it is essential to the company’s market value. The share price is at a record high of $1,305, which gives Amazon a market cap of $629 billion. As several analysts have pointed out, the rise makes Bezos the richest man in the world. But the valuation hangs on the thread of the company’s growth. The stock is up 118% in the past two years, compared to the Nasdaq at 60%.
It’s not hard to make a case that without more success from AWS, Amazon’s stock cannot go higher.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Latest from 24/7
