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Looks like AWS is their Golden Goose, with 64% of their operating income coming from it. ( The retail side must be operating at very thin margins. ) > For the

Looks like AWS is their Golden Goose, with 64% of their operating income coming from it. ( The retail side must be operating at very thin margins. ) > For the quarter, AWS sales jumped 45 percent year-over-year, while generating $1.3 billion in operating income, a whopping 64 percent share of Amazon's total operating income. Source: https://www.cnbc.com/2018/02/01/amazon-earnings-q4-2017.html https://www.cnbc.com/2018/02/01/amazon-earnings-q4-2017.html Closed at 1,390.00 down -60.89 (-4.20%) After Hours (after earnings announcement): 1,477.99 up +87.99 (6.33%) Saw the close and thought the bull run was correcting. 2 hours later, it ups another 88$. Wow.

Bucephalus355 9y ago
I imagine AWS and Amazon are going to be split up. I say this as someone who dearly loves Amazon and who is an AWS SA Pro Cert / my job depends on them. Antitrust legal theory has grown by leaps and bounds from 20 years ago. Now there are so many theories related to what a monopoly is, even in the absence of a single dominant company, oppressive pricing, etc. When these legal theories migrate from academia to politics is anyone’s guess though (not commenting on if it’s fair also, just noting). This was 100% going to happen to Microsoft with their Office and Windows division being split up, but then the judge in the case, who was very accomplished and smart, made the mistake of sitting down for several interviews with a journalist about the trial BEFORE THE CASE WAS OVER. Microsoft’s lawyers leaped on this, and were able to save the company. One consequence though was Bill Gates accelerated departure from CEO into Chairman and the taking over of Steve Ballmer (ugh).
- dboreham 9y ago
  I'm not sure that the MS antitrust cases are a good example to hold up now because it can be pointed out that MS got the crap beaten out of them subsequently (without the need to split them up) because technology moves on and today's monopoly is tomorrow's legacy junk.
  - us0r 9y ago
    2001 - 22.96 billion / 11.01 operating income 2017 - 90 billion / 22.3 operating income I would love getting the crap beat out of me with my legacy junk and these figures.
    - CydeWeys 9y ago
      You need to adjust those figures for inflation, for starters. And compare to the total performance of an index over the same time range, e.g. the S&P 500 with dividends reinvested.
      - jjeaff 9y ago
        23 billion in 2001 adjusted for inflation is only around 30 billion. Compared to the sp500, msft has also killed it by a factor of 2. http://performance.morningstar.com/stock/performance-return.action?t=MSFT&region=usa&culture=en-US http://performance.morningstar.com/stock/performance-return.... In that chart you can also see that it has also outperformed the software industry average.
        CydeWeys 9y ago
        Good, now we have a valid comparison. Thanks.
    - dboreham 9y ago
      Well: the proposal was to split the company into a Windows company and an Office company because they were using the Windows monopoly to enforce an Office monopoly, and requiring everyone to use their browser. Guess what? Today there is no Windows monopoly (certainly not with hipsters and their Macbooks), Office continues to dominate _because_ it runs cross-platform, and nobody uses the default Windows browser.
RestlessMind 9y ago
> Looks like AWS is their Golden Goose Which makes me curious about Google's strategy regarding Cloud. Ads are cash cow of Google, particularly for commercial queries. As more and more product searches start on Amazon, this cash cow is threatened. So them trying to go after Amazon's Cloud business now make even more sense. Only difference is that Google leadership doesn't seem as ruthless as Bezos. Else, they'd have cut margins on their Cloud offerings to near zero in order to undercut Amazon.
- yazaddaruvala 9y ago
  The genius here is also that Bezos doesn’t care. As soon as someone makes a cloud offering below what he can provide his retail margins increase. It’s a race to the bottom and Amazon wins even at the bottom.
  - RestlessMind 9y ago
    Retail is brutally competitive sector and you can't easily increase margins there (unless it is for luxury retail like Apple or Tiffany).
    - inferiorhuman 9y ago
      Or until you move to someone else's cheaper cloud service.
    - petra 9y ago
      Many prime members use Amazon without really comparing prices.
      - londons_explore 9y ago
        In my experience Amazon usually seems to be about 15% more expensive for most goods I purchase than the cheapest online retailer (usually Aliexpress). Taking a 15% margin on all products sounds pretty sweet to me...
marrone12 9y ago
Amazon retail has always run on razor thin margins.
YZF 9y ago
After hours means close to nothing. Check again tomorrow. Operating income decreased 2% to $4.1 billion, compared with operating income of $4.2 billion in 2016. Net income was $3.0 billion, or $6.15 per diluted share, compared with net income of $2.4 billion, or $4.90 per diluted share, in 2016. The probably need to get to somewhere around $50B net income to justify their valuation so they've still a way to go. Their revenue probably also needs an x10 factor. So back of the envelope says they need to keep growing at a 30% clip per year over 10 years. That's without taking into account the present value of that.
- mrits 9y ago
  What does a justified valuation have to do with stock price?
- justboxing 9y ago
  > After hours means close to nothing. Check again tomorrow. Yep. Just did. AMZN closed 3.5% up = +$48 on a day when the DOW plummeted over 600 points ( - 2.31% ) and most other stocks are in red. Source: http://finance.google.com/finance?q=NASDAQ%3AAMZN&ei=S8t0WuGAH4ux2AbLzY6IDQ http://finance.google.com/finance?q=NASDAQ%3AAMZN&ei=S8t0WuG... After hours trading is usually an indicator of how the next day is going to open.
samfisher83 9y ago
It has been this way for a while. Retail makes a majority of the revenue, which aws generates a majority of the profits. However for the Q I think the retail did beat AWS, but it had way more revenue. However margins on AWS are much better.
Pxtl 9y ago
How does Amazon structure purchasing between their units? Does the Amazon retail system use pay for AWS at market rate? If so, how much of AWS is runninb Amazon's own systems?
- jcrites 9y ago
  There was a talk about some of this at AWS re:Invent in 2017: https://www.portal.reinvent.awsevents.com/connect/sessionDetail.ww?SESSION_ID=15199 https://www.portal.reinvent.awsevents.com/connect/sessionDet... One data point from the slide deck: “[For Prime Day 2016], Amazon retail increased the size of their EC2 fleet, adding capacity that was equal to all of AWS and Amazon.com back in 2009”
tqi 9y ago
Makes me wonder what happens in the next downturn - would companies going belly up / trying to cut costs cause real problems for Amazon's business? Trying to cut infra costs is not the easiest thing to do, but I'm sure companies will look at their AWS bill and wonder if they could be saving money by doing something different.
sharemywin 9y ago
This isn't a good sign for them: https://www.cnbc.com/2018/01/12/amazon-lost-cloud-market-share-to-microsoft-in-the-fourth-quarter-keybanc.html https://www.cnbc.com/2018/01/12/amazon-lost-cloud-market-sha...

Bucephalus355 9y ago

I imagine AWS and Amazon are going to be split up. I say this as someone who dearly loves Amazon and who is an AWS SA Pro Cert / my job depends on them. Antitrust legal theory has grown by leaps and bounds from 20 years ago. Now there are so many theories related to what a monopoly is, even in the absence of a single dominant company, oppressive pricing, etc. When these legal theories migrate from academia to politics is anyone’s guess though (not commenting on if it’s fair also, just noting). This was 100% going to happen to Microsoft with their Office and Windows division being split up, but then the judge in the case, who was very accomplished and smart, made the mistake of sitting down for several interviews with a journalist about the trial BEFORE THE CASE WAS OVER. Microsoft’s lawyers leaped on this, and were able to save the company. One consequence though was Bill Gates accelerated departure from CEO into Chairman and the taking over of Steve Ballmer (ugh).

dboreham 9y ago
I'm not sure that the MS antitrust cases are a good example to hold up now because it can be pointed out that MS got the crap beaten out of them subsequently (without the need to split them up) because technology moves on and today's monopoly is tomorrow's legacy junk.
- us0r 9y ago
  2001 - 22.96 billion / 11.01 operating income 2017 - 90 billion / 22.3 operating income I would love getting the crap beat out of me with my legacy junk and these figures.
  - CydeWeys 9y ago
    You need to adjust those figures for inflation, for starters. And compare to the total performance of an index over the same time range, e.g. the S&P 500 with dividends reinvested.
    - jjeaff 9y ago
      23 billion in 2001 adjusted for inflation is only around 30 billion. Compared to the sp500, msft has also killed it by a factor of 2. http://performance.morningstar.com/stock/performance-return.action?t=MSFT&region=usa&culture=en-US http://performance.morningstar.com/stock/performance-return.... In that chart you can also see that it has also outperformed the software industry average.
      - CydeWeys 9y ago
        Good, now we have a valid comparison. Thanks.
  - dboreham 9y ago
    Well: the proposal was to split the company into a Windows company and an Office company because they were using the Windows monopoly to enforce an Office monopoly, and requiring everyone to use their browser. Guess what? Today there is no Windows monopoly (certainly not with hipsters and their Macbooks), Office continues to dominate _because_ it runs cross-platform, and nobody uses the default Windows browser.

RestlessMind 9y ago

> Looks like AWS is their Golden Goose Which makes me curious about Google's strategy regarding Cloud. Ads are cash cow of Google, particularly for commercial queries. As more and more product searches start on Amazon, this cash cow is threatened. So them trying to go after Amazon's Cloud business now make even more sense. Only difference is that Google leadership doesn't seem as ruthless as Bezos. Else, they'd have cut margins on their Cloud offerings to near zero in order to undercut Amazon.

yazaddaruvala 9y ago
The genius here is also that Bezos doesn’t care. As soon as someone makes a cloud offering below what he can provide his retail margins increase. It’s a race to the bottom and Amazon wins even at the bottom.
- RestlessMind 9y ago
  Retail is brutally competitive sector and you can't easily increase margins there (unless it is for luxury retail like Apple or Tiffany).
  - inferiorhuman 9y ago
    Or until you move to someone else's cheaper cloud service.
  - petra 9y ago
    Many prime members use Amazon without really comparing prices.
    - londons_explore 9y ago
      In my experience Amazon usually seems to be about 15% more expensive for most goods I purchase than the cheapest online retailer (usually Aliexpress). Taking a 15% margin on all products sounds pretty sweet to me...

marrone12 9y ago

Amazon retail has always run on razor thin margins.

YZF 9y ago

After hours means close to nothing. Check again tomorrow. Operating income decreased 2% to $4.1 billion, compared with operating income of $4.2 billion in 2016. Net income was $3.0 billion, or $6.15 per diluted share, compared with net income of $2.4 billion, or $4.90 per diluted share, in 2016. The probably need to get to somewhere around $50B net income to justify their valuation so they've still a way to go. Their revenue probably also needs an x10 factor. So back of the envelope says they need to keep growing at a 30% clip per year over 10 years. That's without taking into account the present value of that.

mrits 9y ago
What does a justified valuation have to do with stock price?
justboxing 9y ago
> After hours means close to nothing. Check again tomorrow. Yep. Just did. AMZN closed 3.5% up = +$48 on a day when the DOW plummeted over 600 points ( - 2.31% ) and most other stocks are in red. Source: http://finance.google.com/finance?q=NASDAQ%3AAMZN&ei=S8t0WuGAH4ux2AbLzY6IDQ http://finance.google.com/finance?q=NASDAQ%3AAMZN&ei=S8t0WuG... After hours trading is usually an indicator of how the next day is going to open.

samfisher83 9y ago

It has been this way for a while. Retail makes a majority of the revenue, which aws generates a majority of the profits. However for the Q I think the retail did beat AWS, but it had way more revenue. However margins on AWS are much better.

Pxtl 9y ago

How does Amazon structure purchasing between their units? Does the Amazon retail system use pay for AWS at market rate? If so, how much of AWS is runninb Amazon's own systems?

jcrites 9y ago
There was a talk about some of this at AWS re:Invent in 2017: https://www.portal.reinvent.awsevents.com/connect/sessionDetail.ww?SESSION_ID=15199 https://www.portal.reinvent.awsevents.com/connect/sessionDet... One data point from the slide deck: “[For Prime Day 2016], Amazon retail increased the size of their EC2 fleet, adding capacity that was equal to all of AWS and Amazon.com back in 2009”

tqi 9y ago

Makes me wonder what happens in the next downturn - would companies going belly up / trying to cut costs cause real problems for Amazon's business? Trying to cut infra costs is not the easiest thing to do, but I'm sure companies will look at their AWS bill and wonder if they could be saving money by doing something different.

sharemywin 9y ago

This isn't a good sign for them: https://www.cnbc.com/2018/01/12/amazon-lost-cloud-market-share-to-microsoft-in-the-fourth-quarter-keybanc.html https://www.cnbc.com/2018/01/12/amazon-lost-cloud-market-sha...