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Amazon Q4 2022 Financials

80 points by makaimc 4y ago

mabbo 4y ago
I don't think Amazon Advertising should be considered separately from Retail. A huge portion of it's money comes from people paying for the top search result on Amazon's retail site. Oh sure, they ad a very tiny "sponsored" but you have to scroll past three of those before you see the actual search result. But if Amazon Retail didn't exist, Amazon Ads wouldn't either. Meanwhile, AWS could be split off as an independent company and be quite successful.
- JCM9 4y ago
  +1. Not much different than Google probably losing a ton of money on core search to create a market for what does make them money (selling advertising on search).
  - jjoonathan 4y ago
    Does it count as search or ads if every above-the-fold "result" is actually an ad?
- timbray 4y ago
  We agree, AWS is a clean break, ads is way more messy. But ads only works because of Amazon retail's sorta-kinda-monopoly position. It's still a big distortion of the market. But I don't have a bright idea what to do about it.
  - jsnell 4y ago
    Isn't it kind of self-correcting? The more Amazon pushes products sold by third parties, the worse shopping at Amazon becomes. The worse shopping at Amazon becomes, the more people will shop elsewhere and not see the ads.
    - __derek__ 4y ago
      Absolutely. Every HN thread about Amazon retail is littered with comments about giving up on shopping there and finding a better experience (e.g., less junk, cheaper prices, better selection) elsewhere. If anything, the growth of Amazon Ads has pushed e-commerce spend to Walmart, the actual leader in retail.
      - thexumaker 4y ago
        lmao as someone who spent a couple months at Walmart global tech, they may be the leaders in retail but they are not stealing Amazon customers. If anything Target, Wayfair, Best Buy, TJ Max etc are taking more market share. Last time I shopped at Walmart, it was a mess and their e commerce is even worse, products come all beat up, 3rd party policies are a free for all atm, and the scams are even worse there
        __derek__ 4y ago
        The other stores' taking e-commerce share would be consistent with the spirit of the comment, IMO. I agree on the third-party products/listings. I have to assume that Sam Walton is turning in is grave because it all seems like a perversion of old-school merchandising.
      - _rs 4y ago
        I agree 100%. However, a lot of my woes with Amazon are due to inventory commingling- because I make sure to only buy Ships & Sold by Amazon items. With that said, Walmart is beginning to push 3rd party sellers a lot online too, and filtering for items sold by Walmart can be difficult. A lot of times items show up as in stock in search results only to actually not be in stock when I finally load the product or cart pages, and Walmart will often switch these to in-store pick up automatically which is frustrating as the nearest store to me is quite far. I’ve had good luck shopping at Target but their prices are almost never as competitive.
        __derek__ 4y ago
        That sounds like a frustrating experience. I don't shop at Walmart because Seattle is kind of a Walmart desert (whereas Amazon return drops are everywhere), but it always seems like there are comments promoting it in those threads.
  - jacobr1 4y ago
    Also the ads are generally directed to some _other_ site, they are for hosted-on-amazon-retail storefronts or product listings.
  - HDThoreaun 4y ago
    I'm not sure we do. Amazon retail at this point from a business perspective is nothing but a way to sell ads. Talking about retail losing money when not counting ads is like saying google search loses money when not counting ads. And no, Amazon would still be able to sell ads if they had a smaller market share.
  - cbsmith 4y ago
    Amazon retail is a tent pole... Not unlike a blockbuster movie that might not even be profitable, but creates profits for all kinds of businesses around it.
- qbasic_forever 4y ago
  If AWS was split off it would be kind of funny if Microsoft or Google immediately purchased it outright.
  - room271 4y ago
    There is no chance the competition authorities would allow that.
    - qbasic_forever 4y ago
      Microsoft has embedded itself deeply into the democratic party through huge PAC donations over decades. If anyone has sway with the democratic appointed FTC, it would be them. Acquiring AWS would absolutely be the kind of emergency/pull out every stop to make it happen event worth tapping every connection (and then some) to make happen. Overnight they would go from scrappy second place to the dominant provider of all cloud computing on the planet. Far more dumb mergers were greenlit in the past like AOL/Time Warner.
      - deleted 4y ago
        [deleted]
      - mikeyouse 4y ago
        Aside from a general lack of understanding of PAC funding, I take it you're unfamiliar with the work of Lina Khan who's the chair of this FTC? https://siliconangle.com/2021/12/23/report-ftc-chair-lina-khan-advancing-investigation-aws/ https://siliconangle.com/2021/12/23/report-ftc-chair-lina-kh... https://www.nytimes.com/2022/12/09/technology/lina-khan-ftc-microsoft-activision.html https://www.nytimes.com/2022/12/09/technology/lina-khan-ftc-...
        qbasic_forever 4y ago
        https://www.opensecrets.org/orgs/microsoft-corp/summary?toprecipcycle=2020&contribcycle=2022&lobcycle=2022&outspendcycle=2022&id=d000000115&topnumcycle=2020 https://www.opensecrets.org/orgs/microsoft-corp/summary?topr... In the 2020 presidential election year Microsoft donated over 21 million dollars, almost all to democrats and the Biden campaign. They were the 26th largest donor, period. Biden appointed Lina Khan, she owes her job to him (and he can choose not to appoint her again!). Biden owes a substantial amount of his presidential campaign funding to Microsoft... not hard to connect the dots here. Go back decades--Hillary Clinton, Obama, Gore, etc. and Microsoft was always been donating enormous amounts of money to democratic candidates.
- benjaminwootton 4y ago
  I was going to make the same point. Their retail business could lose $billions if people are paying more $billions to advertise on top of the same platform. It’s a smart move to use single digit margins in retail as a route to making double digit margins in online advertising.
- MuffinFlavored 4y ago
  > A huge portion of it's money comes from people paying for the top search result on Amazon's retail site. What are some of the average metrics for the average Amazon seller doing paid advertising? Cost per impression, cost per click, cost per conversion/sale? I wonder how they compare to Google AdWords.
- di456 4y ago
  Per SEC rules, once a business reaches a certain size it has to be detailed out on the financials. That's why the ads business is reported separately now
  - deleted 4y ago
    [deleted]
  - alberth 4y ago
    I'm not certain that is accurate. E.g. Apple famously doesn't report App Store revenues. Instead it's just part of their "services" revenue which includes several other things.
    - di456 4y ago
      You can read more about it under "Accounting Pronouncements Recently Adopted" in this 10k report, page 48 https://www.sec.gov/Archives/edgar/data/1018724/000101872419000004/amzn-20181231x10k.htm https://www.sec.gov/Archives/edgar/data/1018724/000101872419... Edit: guess it was FASB, not SEC
      - alberth 4y ago
        > "In May 2014, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) amending revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. We adopted this ASU on January 1, 2018 for all revenue contracts with our customers using the modified retrospective approach and increased retained earnings by approximately $650 million." The only section in the 10K referencing FASB is above. This is related to reporting CUSTOMER contracts, not a requirement to report Business Division revenue (like Amazons Ad Business). The reason for this change, which again is unrelated to the original topic at hand, is that it posses a financial risk to investors if X customer represents a significant portion of the companies revenue.
        4y ago
- rhplus 4y ago
  AWS brings in something like 16% of total revenue, but accounts for 74% of profits. No way would it be split off.
  - chx 4y ago
    Let's see what Lina M. Khan has to say about that, shall we?
- HillRat 4y ago
  Advertising used to be treated as a Retail line item, but Bezos deliberately broke it out to put profitability pressure on Retail by not giving them a way to hide their losses in the bottom line.
flerchin 4y ago
Tim argues that Amazon should spin off AWS, or perhaps he's arguing for government intervention to that effect. What do we think would happen to the retail Amazon if it did not have the giant profit-center of AWS? Presumably it would crumble under a lack of profit, or start doing the MBA thing to generally worsen everything to drive up the quarterly results.
- brianwawok 4y ago
  Amazon market cap is ~1T today. How would you split that between AWS and Retail? Depending on how much of the value goes along to AWS... retail could look like a lot of high value / low margin businesses that do just fine. Obviously if you give 99% of the value to retail and pull the profit center, it would be bad. But that wouldn't happen.
  - jsnell 4y ago
    I don't quite understand the question. One wouldn't try to split the market cap. Instead you'd split the company (each share in Amazon becomes on share in Nu-Amazon and one share in AWS). The prices of those new shares will determine the market cap of each half.
    - rhplus 4y ago
      With that strategy, at the time of split you would be valuing them each at 50% of $1T.
      - usefulcat 4y ago
        You seem to be assuming that the two kinds of shares would or must have the same price.
      - reducesuffering 4y ago
        No you wouldn't. You'd have one share of AWS and one share of Amazon, that the market previously priced the sum of them as $1T. On market open, the market will have some volatility finding the estimated price difference between them, but I wouldn't expect any actual sales of Amazon retail at around $500b.
laluser 4y ago
If AWS is spun off, then I don't believe retail would be able to survive. Online retail vs. brick and mortar still has a lot of growth left and it won't make sense to spin it off until it grabs an even bigger piece of the pie.
- protastus 4y ago
  This is the essence of anti-trust. The Amazon retail business would struggle to compete effectively on its own, and would have to work on its weaknesses. As a whole, the economy would be better off.
  - repsilat 4y ago
    You could argue it both ways. The essence of US antitrust is consumer harm. If Amazon were broken up the retail arm might die, and consumers would arguably suffer -- they wouldn't receive the subsidies they currently get from AWS, they'd pay more for products and get slower shipping. To argue that Amazon retail consumers would be better off without the subsidies from AWS takes some slightly more complex logic -- that increased Amazon prices would lead to more competition and so lead to lower prices (or better quality). IMO that argument is tenuous. If Amazon, having killed off its competition, were to raise prices I think you'd have an argument, but at the "undercutting" stage I think (IANAL) they're safe.
    - bsder 4y ago
      > If Amazon were broken up the retail arm might die, and consumers would arguably suffer -- they wouldn't receive the subsidies they currently get from AWS, they'd pay more for products and get slower shipping. This isn't necessarily a downside for consumers as you might get actual customized retail shops opening up again. This would enable you to get your stuff faster than delivery. I would love to have a "technical bookstore" back again, for example. Amazon's retail arm imploding would enable that business to return.
  - drstewart 4y ago
    How far do you take this? An individual developer would struggle to compete effectively on its own, and would have to work on their weaknesses. As a whole, the economy would be better off. So should we break up every venture of more than one person?
SkipperCat 4y ago
AWS 20% Y-o-Y growth.... My take away from this is cloud compute utilization is still in its infancy and will continue to grow faster than most sectors of the tech economy. There's still a lot of stuff on-prem, but new deployments are mostly cloud and that trend will continue. As people get more used to cloud-native deployments, they'll see the value in rented compute instead of leased CPUs. It just seems like too good of a bargain (even with the high prices of AWS) to use them instead of self hosting. You need less engineers, you get pre-built tech stacks and there is a major reduction in support burden.
- xkqd 4y ago
  > My take away from this is cloud compute utilization is still in its infancy and will continue to grow faster than most sectors of the tech economy. There's still a lot of stuff on-prem, but new deployments are mostly cloud and that trend will continue. So what I’m curious about is whether the growth is actually in transitioning from onprem to cloud, or existing cloud consumers requiring more infrastructure. I know we’ve been throwing more and more compute at our scalability problems rather than optimizing what we have.
  - kypro 4y ago
    I've wondered the same. Anecdotally every company I've worked for in recent years made the move to cloud years ago, but every year they require more infrastructure. I'd actually be surprised if most of the growth in cloud was coming from companies migrating at this point. From my personal experience it would seem more likely that most of the growth would come from the growing demand in digital infrastructure, not demand for cloud per-say. > I know we’ve been throwing more and more compute at our scalability problems rather than optimizing what we have. On this point, I've noticed that cloud has made it so much easier to add infrastructure that companies will now do it without really thinking. For better or worse hardware is no longer the constraint it used to be.
  - SkipperCat 4y ago
    I think the driver is new deployments. If you're starting from scratch, you'll probably start with the cloud. New companies are created all the time and old companies tech ages out. I'm guessing when faced with a new deployment, the three main cloud vendors will be the road taken. Everything either starts or ages out at some time and is created.replaced with something new, and when that happens, its going to be in the cloud.
StratusBen 4y ago
Everyone seems to be talking about the YoY percentage growth decline for AWS being at "only" 20%. Seemingly what's happening is just optimization en masse which is temporarily impacting growth on a YoY basis. There are other comments that allude to the on-prem to public cloud migration being in its infancy and I agree with that despite the growth rate decline becoming more noticeable. Everyone is signing up for Savings Plans and RIs. Everyone. We actually just released a report on this showing a steep decline in on-demand utilization throughout Q4 which you can see here...it's just amazing to see it finally popping up in earnings reports: https://www.vantage.sh/cloud-cost-report/2022-q4 https://www.vantage.sh/cloud-cost-report/2022-q4
- ericpauley 4y ago
  The data on on-demand percentage change is really interesting. I wonder if there's some underlying correlation that causes people to under-estimate this transition. For instance, orgs using reserved instances might tend to be larger (lower relative usage variance) and therefore have fewer cloud employees per compute spend. Thus, the on-demand share weighted by employees would actually be far larger than when weighted by compute spend (and making the transition less tangible to the hivemind). Thanks for publishing these reports! They have tons of business insight and, personally, I've really enjoyed reading them.
mediaman 4y ago
Tim asks about why the $-19bn free cash flow for '22 is not a worry. All of this is because enormous levels of cap-ex spend: $58bn in net purchases of property and equipment over the year ($63bn gross). The other piece is $9bn in debt paydown of lease obligations, which is not really concerning because it's just a debt reduction. They don't provide much of a breakdown of this very large capex number. Presumably a lot of it is fulfilment center spend, but there's data centers, vehicles, etc., to consider as well. It really comes down to whether this spend is wise. If this cap-ex will generate strong ROI, it's fine.
dang 4y ago
Recent and related: Amazon reports its first unprofitable year since 2014 - https://news.ycombinator.com/item?id=34640922 https://news.ycombinator.com/item?id=34640922 - Feb 2023 (189 comments)
lackbeard 4y ago
>And why is it legal for Amazon to be the prime competitor of the economy’s whole retail sector while not having to make a profit? I wish the author had elaborated on why it should be illegal. (Or maybe, how it is?)
- unity1001 4y ago
  > I wish the author had elaborated on why it should be illegal. (Or maybe, how it is?) Its implicit - an actor is taking over entire societal logistics and ecommerce while burning investor money with no obligation to make profit, hence be sustainable. (applies to many tech giants). Practically becoming a public utility that the society depends on for running itself day to day. If that actor goes tits up, then the entire society will experience chaos due to that supposedly private, but actually public infrastructure crumbling down with nothing at that scale to back it up. Its too risky and irresponsible. You can bet that they will force the government to bail it out if that happens, by saying that it is 'too big to fail'. Socialized costs. Privatized profits.
dzink 4y ago
This is where an MBA helps, or a really good article like this one: https://commoncog.com/cash-flow-games/ https://commoncog.com/cash-flow-games/ TLDR: If you have predictable money coming on because you are so necessary to society (like a utility), instead of paying profits to the government, you can take loans against your cash flow and grow by acquiring businesses with the extra cash. You will always seem unprofitable, and you get to benefit from loan interest deductions on your predictable cash, but in reality you grow bigger than ever, through acquisition. Another thing Amazon has going for it is the 30-60-90 terms it has with many suppliers and affiliates - they make the money now and pay them a month or three months from now. That makes them further bank in huge valuation compared to the rest of the sector. Cash flow is king. That is why Leveraged Buyouts were a big thing for a while and why when interest rates go up, the math for many of these levered giants stops working or needs adjustment. Toys RUs are an example. It’s a very valid growth approach, and it works well if you can afford (and don’t overdo it).
- boppo1 4y ago
  Do you have an MBA? If not, where'd you learn to recognize stuff like this?
  - finikytou 4y ago
    you should go out and look at whole food shops, walk in the streets early at delivery time to see in the trucks what kind of package people are getting (PRIME is now a word of english vocabulary), what video people have on their door, how many people hire amazon, how they have airline, all it takes is noticing all those daily influence that amazon has on professional and individuals life. they are the biggest company that has ever been in the western world. by a huge margin. and big is scary to government. big is scary to people. better look big and broke than big and financially looking like you killing everyone else
    - sokoloff 4y ago
      How much of Amazon’s airlift is in-house vs Atlas, ATSG, and Kalitta? I mostly see and hear the latter three, but I admit to not knowing just how tightly controlled or owned they are vs just contracted lift.
marcopicentini 4y ago
Why nobody talks about the big logs they had from Rivian? How is it possible that Amazon paid $2B for Rivian which after 1 loss almost all its value?
fomine3 4y ago
Cloud discount was a thing before everyone locked in. Now profit.

80 points by makaimc 4y ago

I don't think Amazon Advertising should be considered separately from Retail. A huge portion of it's money comes from people paying for the top search result on Amazon's retail site. Oh sure, they ad a very tiny "sponsored" but you have to scroll past three of those before you see the actual search result. But if Amazon Retail didn't exist, Amazon Ads wouldn't either. Meanwhile, AWS could be split off as an independent company and be quite successful.

JCM9 4y ago
+1. Not much different than Google probably losing a ton of money on core search to create a market for what does make them money (selling advertising on search).
- jjoonathan 4y ago
  Does it count as search or ads if every above-the-fold "result" is actually an ad?
timbray 4y ago
We agree, AWS is a clean break, ads is way more messy. But ads only works because of Amazon retail's sorta-kinda-monopoly position. It's still a big distortion of the market. But I don't have a bright idea what to do about it.
- jsnell 4y ago
  Isn't it kind of self-correcting? The more Amazon pushes products sold by third parties, the worse shopping at Amazon becomes. The worse shopping at Amazon becomes, the more people will shop elsewhere and not see the ads.
  - __derek__ 4y ago
    Absolutely. Every HN thread about Amazon retail is littered with comments about giving up on shopping there and finding a better experience (e.g., less junk, cheaper prices, better selection) elsewhere. If anything, the growth of Amazon Ads has pushed e-commerce spend to Walmart, the actual leader in retail.
    - thexumaker 4y ago
      lmao as someone who spent a couple months at Walmart global tech, they may be the leaders in retail but they are not stealing Amazon customers. If anything Target, Wayfair, Best Buy, TJ Max etc are taking more market share. Last time I shopped at Walmart, it was a mess and their e commerce is even worse, products come all beat up, 3rd party policies are a free for all atm, and the scams are even worse there
      - __derek__ 4y ago
        The other stores' taking e-commerce share would be consistent with the spirit of the comment, IMO. I agree on the third-party products/listings. I have to assume that Sam Walton is turning in is grave because it all seems like a perversion of old-school merchandising.
    - _rs 4y ago
      I agree 100%. However, a lot of my woes with Amazon are due to inventory commingling- because I make sure to only buy Ships & Sold by Amazon items. With that said, Walmart is beginning to push 3rd party sellers a lot online too, and filtering for items sold by Walmart can be difficult. A lot of times items show up as in stock in search results only to actually not be in stock when I finally load the product or cart pages, and Walmart will often switch these to in-store pick up automatically which is frustrating as the nearest store to me is quite far. I’ve had good luck shopping at Target but their prices are almost never as competitive.
      - __derek__ 4y ago
        That sounds like a frustrating experience. I don't shop at Walmart because Seattle is kind of a Walmart desert (whereas Amazon return drops are everywhere), but it always seems like there are comments promoting it in those threads.
- jacobr1 4y ago
  Also the ads are generally directed to some _other_ site, they are for hosted-on-amazon-retail storefronts or product listings.
- HDThoreaun 4y ago
  I'm not sure we do. Amazon retail at this point from a business perspective is nothing but a way to sell ads. Talking about retail losing money when not counting ads is like saying google search loses money when not counting ads. And no, Amazon would still be able to sell ads if they had a smaller market share.
- cbsmith 4y ago
  Amazon retail is a tent pole... Not unlike a blockbuster movie that might not even be profitable, but creates profits for all kinds of businesses around it.
qbasic_forever 4y ago
If AWS was split off it would be kind of funny if Microsoft or Google immediately purchased it outright.
- room271 4y ago
  There is no chance the competition authorities would allow that.
  - qbasic_forever 4y ago
    Microsoft has embedded itself deeply into the democratic party through huge PAC donations over decades. If anyone has sway with the democratic appointed FTC, it would be them. Acquiring AWS would absolutely be the kind of emergency/pull out every stop to make it happen event worth tapping every connection (and then some) to make happen. Overnight they would go from scrappy second place to the dominant provider of all cloud computing on the planet. Far more dumb mergers were greenlit in the past like AOL/Time Warner.
    - deleted 4y ago
      [deleted]
    - mikeyouse 4y ago
      Aside from a general lack of understanding of PAC funding, I take it you're unfamiliar with the work of Lina Khan who's the chair of this FTC? https://siliconangle.com/2021/12/23/report-ftc-chair-lina-khan-advancing-investigation-aws/ https://siliconangle.com/2021/12/23/report-ftc-chair-lina-kh... https://www.nytimes.com/2022/12/09/technology/lina-khan-ftc-microsoft-activision.html https://www.nytimes.com/2022/12/09/technology/lina-khan-ftc-...
      - qbasic_forever 4y ago
        https://www.opensecrets.org/orgs/microsoft-corp/summary?toprecipcycle=2020&contribcycle=2022&lobcycle=2022&outspendcycle=2022&id=d000000115&topnumcycle=2020 https://www.opensecrets.org/orgs/microsoft-corp/summary?topr... In the 2020 presidential election year Microsoft donated over 21 million dollars, almost all to democrats and the Biden campaign. They were the 26th largest donor, period. Biden appointed Lina Khan, she owes her job to him (and he can choose not to appoint her again!). Biden owes a substantial amount of his presidential campaign funding to Microsoft... not hard to connect the dots here. Go back decades--Hillary Clinton, Obama, Gore, etc. and Microsoft was always been donating enormous amounts of money to democratic candidates.
benjaminwootton 4y ago
I was going to make the same point. Their retail business could lose $billions if people are paying more $billions to advertise on top of the same platform. It’s a smart move to use single digit margins in retail as a route to making double digit margins in online advertising.
MuffinFlavored 4y ago
> A huge portion of it's money comes from people paying for the top search result on Amazon's retail site. What are some of the average metrics for the average Amazon seller doing paid advertising? Cost per impression, cost per click, cost per conversion/sale? I wonder how they compare to Google AdWords.
di456 4y ago
Per SEC rules, once a business reaches a certain size it has to be detailed out on the financials. That's why the ads business is reported separately now
- deleted 4y ago
  [deleted]
- alberth 4y ago
  I'm not certain that is accurate. E.g. Apple famously doesn't report App Store revenues. Instead it's just part of their "services" revenue which includes several other things.
  - di456 4y ago
    You can read more about it under "Accounting Pronouncements Recently Adopted" in this 10k report, page 48 https://www.sec.gov/Archives/edgar/data/1018724/000101872419000004/amzn-20181231x10k.htm https://www.sec.gov/Archives/edgar/data/1018724/000101872419... Edit: guess it was FASB, not SEC
    - alberth 4y ago
      > "In May 2014, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) amending revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. We adopted this ASU on January 1, 2018 for all revenue contracts with our customers using the modified retrospective approach and increased retained earnings by approximately $650 million." The only section in the 10K referencing FASB is above. This is related to reporting CUSTOMER contracts, not a requirement to report Business Division revenue (like Amazons Ad Business). The reason for this change, which again is unrelated to the original topic at hand, is that it posses a financial risk to investors if X customer represents a significant portion of the companies revenue.
      - 4y ago
rhplus 4y ago
AWS brings in something like 16% of total revenue, but accounts for 74% of profits. No way would it be split off.
- chx 4y ago
  Let's see what Lina M. Khan has to say about that, shall we?
HillRat 4y ago
Advertising used to be treated as a Retail line item, but Bezos deliberately broke it out to put profitability pressure on Retail by not giving them a way to hide their losses in the bottom line.

flerchin 4y ago

Tim argues that Amazon should spin off AWS, or perhaps he's arguing for government intervention to that effect. What do we think would happen to the retail Amazon if it did not have the giant profit-center of AWS? Presumably it would crumble under a lack of profit, or start doing the MBA thing to generally worsen everything to drive up the quarterly results.

brianwawok 4y ago
Amazon market cap is ~1T today. How would you split that between AWS and Retail? Depending on how much of the value goes along to AWS... retail could look like a lot of high value / low margin businesses that do just fine. Obviously if you give 99% of the value to retail and pull the profit center, it would be bad. But that wouldn't happen.
- jsnell 4y ago
  I don't quite understand the question. One wouldn't try to split the market cap. Instead you'd split the company (each share in Amazon becomes on share in Nu-Amazon and one share in AWS). The prices of those new shares will determine the market cap of each half.
  - rhplus 4y ago
    With that strategy, at the time of split you would be valuing them each at 50% of $1T.
    - usefulcat 4y ago
      You seem to be assuming that the two kinds of shares would or must have the same price.
    - reducesuffering 4y ago
      No you wouldn't. You'd have one share of AWS and one share of Amazon, that the market previously priced the sum of them as $1T. On market open, the market will have some volatility finding the estimated price difference between them, but I wouldn't expect any actual sales of Amazon retail at around $500b.

laluser 4y ago

If AWS is spun off, then I don't believe retail would be able to survive. Online retail vs. brick and mortar still has a lot of growth left and it won't make sense to spin it off until it grabs an even bigger piece of the pie.

protastus 4y ago
This is the essence of anti-trust. The Amazon retail business would struggle to compete effectively on its own, and would have to work on its weaknesses. As a whole, the economy would be better off.
- repsilat 4y ago
  You could argue it both ways. The essence of US antitrust is consumer harm. If Amazon were broken up the retail arm might die, and consumers would arguably suffer -- they wouldn't receive the subsidies they currently get from AWS, they'd pay more for products and get slower shipping. To argue that Amazon retail consumers would be better off without the subsidies from AWS takes some slightly more complex logic -- that increased Amazon prices would lead to more competition and so lead to lower prices (or better quality). IMO that argument is tenuous. If Amazon, having killed off its competition, were to raise prices I think you'd have an argument, but at the "undercutting" stage I think (IANAL) they're safe.
  - bsder 4y ago
    > If Amazon were broken up the retail arm might die, and consumers would arguably suffer -- they wouldn't receive the subsidies they currently get from AWS, they'd pay more for products and get slower shipping. This isn't necessarily a downside for consumers as you might get actual customized retail shops opening up again. This would enable you to get your stuff faster than delivery. I would love to have a "technical bookstore" back again, for example. Amazon's retail arm imploding would enable that business to return.
- drstewart 4y ago
  How far do you take this? An individual developer would struggle to compete effectively on its own, and would have to work on their weaknesses. As a whole, the economy would be better off. So should we break up every venture of more than one person?

SkipperCat 4y ago

AWS 20% Y-o-Y growth.... My take away from this is cloud compute utilization is still in its infancy and will continue to grow faster than most sectors of the tech economy. There's still a lot of stuff on-prem, but new deployments are mostly cloud and that trend will continue. As people get more used to cloud-native deployments, they'll see the value in rented compute instead of leased CPUs. It just seems like too good of a bargain (even with the high prices of AWS) to use them instead of self hosting. You need less engineers, you get pre-built tech stacks and there is a major reduction in support burden.

xkqd 4y ago
> My take away from this is cloud compute utilization is still in its infancy and will continue to grow faster than most sectors of the tech economy. There's still a lot of stuff on-prem, but new deployments are mostly cloud and that trend will continue. So what I’m curious about is whether the growth is actually in transitioning from onprem to cloud, or existing cloud consumers requiring more infrastructure. I know we’ve been throwing more and more compute at our scalability problems rather than optimizing what we have.
- kypro 4y ago
  I've wondered the same. Anecdotally every company I've worked for in recent years made the move to cloud years ago, but every year they require more infrastructure. I'd actually be surprised if most of the growth in cloud was coming from companies migrating at this point. From my personal experience it would seem more likely that most of the growth would come from the growing demand in digital infrastructure, not demand for cloud per-say. > I know we’ve been throwing more and more compute at our scalability problems rather than optimizing what we have. On this point, I've noticed that cloud has made it so much easier to add infrastructure that companies will now do it without really thinking. For better or worse hardware is no longer the constraint it used to be.
- SkipperCat 4y ago
  I think the driver is new deployments. If you're starting from scratch, you'll probably start with the cloud. New companies are created all the time and old companies tech ages out. I'm guessing when faced with a new deployment, the three main cloud vendors will be the road taken. Everything either starts or ages out at some time and is created.replaced with something new, and when that happens, its going to be in the cloud.

StratusBen 4y ago

Everyone seems to be talking about the YoY percentage growth decline for AWS being at "only" 20%. Seemingly what's happening is just optimization en masse which is temporarily impacting growth on a YoY basis. There are other comments that allude to the on-prem to public cloud migration being in its infancy and I agree with that despite the growth rate decline becoming more noticeable. Everyone is signing up for Savings Plans and RIs. Everyone. We actually just released a report on this showing a steep decline in on-demand utilization throughout Q4 which you can see here...it's just amazing to see it finally popping up in earnings reports: https://www.vantage.sh/cloud-cost-report/2022-q4 https://www.vantage.sh/cloud-cost-report/2022-q4

ericpauley 4y ago
The data on on-demand percentage change is really interesting. I wonder if there's some underlying correlation that causes people to under-estimate this transition. For instance, orgs using reserved instances might tend to be larger (lower relative usage variance) and therefore have fewer cloud employees per compute spend. Thus, the on-demand share weighted by employees would actually be far larger than when weighted by compute spend (and making the transition less tangible to the hivemind). Thanks for publishing these reports! They have tons of business insight and, personally, I've really enjoyed reading them.

mediaman 4y ago

Tim asks about why the $-19bn free cash flow for '22 is not a worry. All of this is because enormous levels of cap-ex spend: $58bn in net purchases of property and equipment over the year ($63bn gross). The other piece is $9bn in debt paydown of lease obligations, which is not really concerning because it's just a debt reduction. They don't provide much of a breakdown of this very large capex number. Presumably a lot of it is fulfilment center spend, but there's data centers, vehicles, etc., to consider as well. It really comes down to whether this spend is wise. If this cap-ex will generate strong ROI, it's fine.

dang 4y ago

Recent and related: Amazon reports its first unprofitable year since 2014 - https://news.ycombinator.com/item?id=34640922 https://news.ycombinator.com/item?id=34640922 - Feb 2023 (189 comments)

lackbeard 4y ago

>And why is it legal for Amazon to be the prime competitor of the economy’s whole retail sector while not having to make a profit? I wish the author had elaborated on why it should be illegal. (Or maybe, how it is?)

unity1001 4y ago
> I wish the author had elaborated on why it should be illegal. (Or maybe, how it is?) Its implicit - an actor is taking over entire societal logistics and ecommerce while burning investor money with no obligation to make profit, hence be sustainable. (applies to many tech giants). Practically becoming a public utility that the society depends on for running itself day to day. If that actor goes tits up, then the entire society will experience chaos due to that supposedly private, but actually public infrastructure crumbling down with nothing at that scale to back it up. Its too risky and irresponsible. You can bet that they will force the government to bail it out if that happens, by saying that it is 'too big to fail'. Socialized costs. Privatized profits.

dzink 4y ago

This is where an MBA helps, or a really good article like this one: https://commoncog.com/cash-flow-games/ https://commoncog.com/cash-flow-games/ TLDR: If you have predictable money coming on because you are so necessary to society (like a utility), instead of paying profits to the government, you can take loans against your cash flow and grow by acquiring businesses with the extra cash. You will always seem unprofitable, and you get to benefit from loan interest deductions on your predictable cash, but in reality you grow bigger than ever, through acquisition. Another thing Amazon has going for it is the 30-60-90 terms it has with many suppliers and affiliates - they make the money now and pay them a month or three months from now. That makes them further bank in huge valuation compared to the rest of the sector. Cash flow is king. That is why Leveraged Buyouts were a big thing for a while and why when interest rates go up, the math for many of these levered giants stops working or needs adjustment. Toys RUs are an example. It’s a very valid growth approach, and it works well if you can afford (and don’t overdo it).

boppo1 4y ago
Do you have an MBA? If not, where'd you learn to recognize stuff like this?
- finikytou 4y ago
  you should go out and look at whole food shops, walk in the streets early at delivery time to see in the trucks what kind of package people are getting (PRIME is now a word of english vocabulary), what video people have on their door, how many people hire amazon, how they have airline, all it takes is noticing all those daily influence that amazon has on professional and individuals life. they are the biggest company that has ever been in the western world. by a huge margin. and big is scary to government. big is scary to people. better look big and broke than big and financially looking like you killing everyone else
  - sokoloff 4y ago
    How much of Amazon’s airlift is in-house vs Atlas, ATSG, and Kalitta? I mostly see and hear the latter three, but I admit to not knowing just how tightly controlled or owned they are vs just contracted lift.

marcopicentini 4y ago

Why nobody talks about the big logs they had from Rivian? How is it possible that Amazon paid $2B for Rivian which after 1 loss almost all its value?

fomine3 4y ago

Cloud discount was a thing before everyone locked in. Now profit.