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They could well be making that profit exactly because servers are free. AWS operating profit q2: $400m, for a $1.6B/year run rate. A fascinating post from Ben
by x0x0 11y ago
They could well be making that profit exactly because servers are free. AWS operating profit q2: $400m, for a $1.6B/year run rate.
A fascinating post from Benedict Evans looks at Amazon's capex/sales ratio from 2009 and looks at what free cash flow would have been had Amazon preserved that ratio through 2014 instead of incurring massive capex. They would have had another $5B over the year previous to that article. [1] Obviously some of that is warehouses, but unless they speak to how much of that is datacenters, I don't see how anyone can assume aws is actually profitable.
[1] http://ben-evans.com/benedictevans/2014/9/4/why-amazon-has-no-profits-and-why-it-works http://ben-evans.com/benedictevans/2014/9/4/why-amazon-has-n...
- sokoloff 11y agoThere is a well understood (and "generally accepted" [GAAP]) formula for operating profits: Operating Profit = Operating Revenue - COGS - Operating Expenses - Depreciation & Amortization AWS Q2 conf call slides: http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9Mjk2MTUxfENoaWxkSUQ9LTF8VHlwZT0z&t=1&cb=635732807364984824 http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9M... You can see on slide 15 "Segment Results-AWS" that the segment profit for Q2 was $391MM on net AWS sales of $1.842BB. Both numbers are for the quarter. The article you linked talks about FCF, not operating income, and free cash flow is still hit with, in Amazon's case, what appears to be capital lease payments. (See slides 21 and 22 for the FCF reconciliation for newly acquired capital equipment, which they don't break out at the segment level.) E&Y audits Amazon's financials. I'm not sure what evidence you have to suggest that Amazon is improperly "not counting" server expenses in AWS profitability numbers, but that would be an extraordinary claim, which would require some substantial evidence to overcome the presumption that E&Y and Amazon finance are correctly reporting. It is true that E&Y has not signed a full-year audit for a year when AWS broke out AWS P&L separately, as that only happened for two quarters so far.
- x0x0 11y agoBut your capital lease payments aren't included in (ie removed from) that operating profit. Since you don't know which is larger, I remain befuddled how you claim aws is profitable.
- sokoloff 11y agoCapital lease principal payments are absolutely charged against operating profit per GAAP. If Amazon is breaking out a segment P&L for AWS, they are no doubt making a good faith effort to correctly charge operating expenses, including capital leases, against that P&L. They also don't break out their electricity costs to run their DCs nor their engineering costs attributable to AWS, yet I'm confident that they are charging those costs against the AWS segment as appropriate. What evidence do you have that Amazon is not removing the capital lease principal payments from the operating profit they're reporting? It's not like they could possibly imagine that's going to "fly"...