Another Amazon Win: Two-Thirds of the Cloud

By Douglas A. McIntyre Updated Jan 12, 4:31AM EST · Published Jan 13, 8:25AM EST

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Another Amazon Win: Two-Thirds of the Cloud — © Thinkstock

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.

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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.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.