Amazon Web Services, the number one player in the public cloud infrastructure market, is a huge asset to the retailer. The high-margin cloud unit keeps growing at above 40% rates, making sure that Amazon continues to stay profitable overall.
Nearly a year and half ago, when I used to write for Seeking Alpha I wrote the following about Amazon Web Services:
“One segment has finally stepped up to fill the gap between reality and high valuation. From now on, the burden of EPS is squarely on AWS’s shoulders, and retailer has the breathing space it needs to become consistently and significantly profitable over time.”
Though I mentioned earning per share in the article, my point was that AWS would remain the most predictable and profitable unit for Amazon, consistently bringing in cash flows. Since Amazon already knows that its bottom line numbers are going to be taken care of by AWS, it will be even more aggressive in spending everything it makes from its retail business – and then some – and put it all back into its retail business. And it will do that by either by adding more services and features, growing its inventory, investing in hardware products, experimenting with new delivery methods and what not.
Simple put, my argument was this: with AWS, Amazon need never worry about margins, and can push extremely hard on growth in its retail segment.
And that seems to be happening already. Amazon is not just spending everything that’s coming from its retail segment, it is spending the money that AWS makes as well. If not for AWS’s operating profits, Amazon will be reporting losses.
Take a look at the following chart released by Business Insider and Statista:
During the third quarter of 2017, Amazon’s net operating profit was just $347 million. If not for the $1.171 billion that AWS brought to the table, Amazon would have had to report a loss for the quarter, and may not have added nearly $62 billion in a day to its market cap after the earnings came out, which pushed Jeff Bozos to the number one position in the richest man alive list.
So, in a way, it was AWS that made Jeff Bezos the richest man alive. Again. Bezos briefly toppled Microsoft founder Bill Gates from the pole position for one day in July this year. This time it might just stick.
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