Services

Amazon Web Services Is Worth $1 Trillion

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One of the things made clear by Amazon’s most recent quarterly statement is that its e-commerce business is in trouble. The North American e-commerce operation posted an increase in revenue of only 8% to $69.4 billion. It reported an operating loss of $1.6 billion. International e-commerce had revenue of $28.8 billion, a drop of 6%, and the unit had an operating loss of $1.3 billion.
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The bright spot in earnings was the results for Amazon Web Services (AWS), the largest cloud services operation in the world. Its revenue rose 37% to $18.4 billion. Operate profit reached $6.5 billion, up 57%.

Amazon’s e-commerce business may have seen its best days, at least in terms of rapid growth. It has hundreds of smaller competitors, probably led by Walmart. Its consumer electronics products are among the most advanced in the market. However, that does not appear to have helped it much last quarter.

Amazon Prime, part of the e-commerce operations, faces growing competition from such companies as Apple and Disney. The recent earnings release from Netflix shows how brutally the video streaming business has become. Investors can fairly ask whether the Prime user base has grown at all recently, particularly because it raised the prices of the service recently.


Amazon’s current market cap is $1.27 trillion. Less and less of that value comes from its besieged retail operations. More and more comes from its dominant cloud business. A recent study by Synergy Research Group showed Amazon had 33% of the global cloud infrastructure sector in the fourth quarter of last year. Microsoft ranked second at 21%. The industry’s growth rate last year was 37% and shows no sign of slowing. AWS could be a $100 billion revenue business in the near future.


Cloud computing businesses carry a much higher multiple than e-commerce does. With its market share and growth, AWS is the engine of Amazon’s success, now and in the future. At Amazon’s market cap, it is reasonable to say AWS is three-quarters of the total.

 

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