5 ms·

Can someone with better knowledge of finance than me explain the significance of this sentence? > A.W.S. was 10 percent of Amazon’s revenue, but more than 100

Can someone with better knowledge of finance than me explain the significance of this sentence? > A.W.S. was 10 percent of Amazon’s revenue, but more than 100 percent of the company’s operating income.

deleted 10y ago
[deleted]
peller 10y ago
I'm not an accountant, but when I want to understand corporate finance technicalities, I'll look up the definitions on investopedia.com. They do a pretty good job of putting them into "layman speak." Revenue is what you think it means[0]: 10% of all the cash Amazon took in over a given period was from AWS. Operating income is "a synonym for earnings before interest and taxes"[1]. So, in effect what they're saying is that AWS is so profitable that it has been subsidizing loss-centers in Amazon's business. Edit: I should add that Amazon has a history of not turning a very large profit (if at all), and instead choosing to re-invest income on growth and R&D. So the behavior itself is not all that newsworthy, it more just speaks to the importance of AWS. [0] http://www.investopedia.com/terms/r/revenue.asp http://www.investopedia.com/terms/r/revenue.asp [1] http://www.investopedia.com/terms/o/operatingincome.asp http://www.investopedia.com/terms/o/operatingincome.asp
- dragonwriter 10y ago
  What it actually sounds like is that AWS is not a focus of the reinvestment in R&D Amazon is famous for. Whether it's unusual in this respect, or whether this is typical of established business units and they focus R&D on new opportunities, I don't know.
  - peller 10y ago
    Maybe? That didn't automatically follow for me - the "more than 100%" is pretty vague. Could it not also hypothetically be that some of the AWS unit's profit gets reinvested into AWS, thus bringing down the absolute value for operating income whilst not violating the percentage relationship?
ZenoArrow 10y ago
I'm not an expert, but this page may help... http://www.investopedia.com/ask/answers/122714/what-difference-between-operating-income-and-revenue.asp http://www.investopedia.com/ask/answers/122714/what-differen... Whilst I don't understand how something can be 'more than 100%' of operating income, I do understand the gap between revenue and operating income being described can exist if other parts of the business are operated as loss leaders (i.e. they don't make profit on everything they sell).
jacques_chester 10y ago
It means that Amazon's retail operation is not turning much of a gross profit, but AWS is.
late2part 10y ago
Here [1] we see that Amazon's (The Conglomerate's) profit was $513M. In the same article, we're told: The operating income for A.W.S. more than tripled in the quarter to $604 million. Therefore, the conglomerate made $513M, and separately, a subsidiary company, AWS made $604M. This means that other parts of the conglomerate lost a total of $91M Here's the 5 year old version. If your family harvests 10 bananas, and you harvest 6 of them, and your family gives away 5 of them, you contributed more than your family kept. [1] http://www.nytimes.com/2016/04/29/technology/amazon-q1-earnings.html http://www.nytimes.com/2016/04/29/technology/amazon-q1-earni...
- deleted 10y ago
  [deleted]
Spooky23 10y ago
Amazon is printing money with AWS, and using that money to continue running the retailing side of the house at a loss.
- toomuchtodo 10y ago
  How much of Amazon's AWS revenue does Google need to eat up for Amazon to no longer be able to subsidize the consumer logistics side of the house?
  - ditonal 10y ago
    Amazon lost money for a long time and both private and public investors were fairly forgiving. More importantly, GCP is not "eating up" Amazon's revenue. Both are growing very fast because the entire market is growing very fast.
    - toomuchtodo 10y ago
      > Both are growing very fast because the entire market is growing very fast. There is a limit though. There's only so much compute and storage required at current prices.
      - Spooky23 10y ago
        That's easy. They are picking up enterprise customers left and right. The strategy there is easy.. just go up the stack and peddle solutions built on AWS. Oracle makes billions selling crap the customer never install, much less use.
  - Spooky23 10y ago
    Bezos speaks Wall Streets language and will get away with making little for many years. The grocery business is a huge push that will require much broader capital investments over a huge geographic footprint. They will be back to losing money soon enough.

deleted 10y ago

[deleted]

peller 10y ago

I'm not an accountant, but when I want to understand corporate finance technicalities, I'll look up the definitions on investopedia.com. They do a pretty good job of putting them into "layman speak." Revenue is what you think it means[0]: 10% of all the cash Amazon took in over a given period was from AWS. Operating income is "a synonym for earnings before interest and taxes"[1]. So, in effect what they're saying is that AWS is so profitable that it has been subsidizing loss-centers in Amazon's business. Edit: I should add that Amazon has a history of not turning a very large profit (if at all), and instead choosing to re-invest income on growth and R&D. So the behavior itself is not all that newsworthy, it more just speaks to the importance of AWS. [0] http://www.investopedia.com/terms/r/revenue.asp http://www.investopedia.com/terms/r/revenue.asp [1] http://www.investopedia.com/terms/o/operatingincome.asp http://www.investopedia.com/terms/o/operatingincome.asp

dragonwriter 10y ago
What it actually sounds like is that AWS is not a focus of the reinvestment in R&D Amazon is famous for. Whether it's unusual in this respect, or whether this is typical of established business units and they focus R&D on new opportunities, I don't know.
- peller 10y ago
  Maybe? That didn't automatically follow for me - the "more than 100%" is pretty vague. Could it not also hypothetically be that some of the AWS unit's profit gets reinvested into AWS, thus bringing down the absolute value for operating income whilst not violating the percentage relationship?

ZenoArrow 10y ago

I'm not an expert, but this page may help... http://www.investopedia.com/ask/answers/122714/what-difference-between-operating-income-and-revenue.asp http://www.investopedia.com/ask/answers/122714/what-differen... Whilst I don't understand how something can be 'more than 100%' of operating income, I do understand the gap between revenue and operating income being described can exist if other parts of the business are operated as loss leaders (i.e. they don't make profit on everything they sell).

jacques_chester 10y ago

It means that Amazon's retail operation is not turning much of a gross profit, but AWS is.

late2part 10y ago

Here [1] we see that Amazon's (The Conglomerate's) profit was $513M. In the same article, we're told: The operating income for A.W.S. more than tripled in the quarter to $604 million. Therefore, the conglomerate made $513M, and separately, a subsidiary company, AWS made $604M. This means that other parts of the conglomerate lost a total of $91M Here's the 5 year old version. If your family harvests 10 bananas, and you harvest 6 of them, and your family gives away 5 of them, you contributed more than your family kept. [1] http://www.nytimes.com/2016/04/29/technology/amazon-q1-earnings.html http://www.nytimes.com/2016/04/29/technology/amazon-q1-earni...

deleted 10y ago
[deleted]

Spooky23 10y ago

Amazon is printing money with AWS, and using that money to continue running the retailing side of the house at a loss.

toomuchtodo 10y ago
How much of Amazon's AWS revenue does Google need to eat up for Amazon to no longer be able to subsidize the consumer logistics side of the house?
- ditonal 10y ago
  Amazon lost money for a long time and both private and public investors were fairly forgiving. More importantly, GCP is not "eating up" Amazon's revenue. Both are growing very fast because the entire market is growing very fast.
  - toomuchtodo 10y ago
    > Both are growing very fast because the entire market is growing very fast. There is a limit though. There's only so much compute and storage required at current prices.
    - Spooky23 10y ago
      That's easy. They are picking up enterprise customers left and right. The strategy there is easy.. just go up the stack and peddle solutions built on AWS. Oracle makes billions selling crap the customer never install, much less use.
- Spooky23 10y ago
  Bezos speaks Wall Streets language and will get away with making little for many years. The grocery business is a huge push that will require much broader capital investments over a huge geographic footprint. They will be back to losing money soon enough.