The CFO of Amazon.com, Inc. (NASDAQ:AMZN) declared in the organization’s January 2015 earnings conference that the firm would begin reporting its AWS (Amazon Web Services) segment data.
Reticence on AWS data
AWS was introduced in 2006 and continues to be a significant Amazon initiative. In the past, it came under Other revenue line item which also covered advertising services and co-branded credit cards. Overall investors are bullish on AWS. However, the firm has revealed very few financials regarding the latter.
As Amazon is not transparent about certain initiatives releasing, AWS details might help or harm the stock. Investors might view the details in either positive or negative light.
Different reactions as per scenarios
There are four scenarios on how investors would respond to AWS details.
- AWS is losing more money than anticipated. This means Amazon’s core business ( around 94% of revenue) is more profitable than earlier estimated. Hence, investors would respond favorably.
- AWS is losing more money than anticipated. Investors respond negatively since one of Amazon’s major initiatives isn’t doing as well as anticipated.
- AWS is making more money than anticipated. Investors respond positively since one of Amazon’s major initiatives is doing better than anticipated.
- AWS is making more money than anticipated. Investors respond negatively as it means Amazon’s core business is weaker than anticipated.
In 2014, Amazon’s Other revenue was 6.3% of overall revenue at $5.6 billion. In 2013, the revenue was 5.3% of overall revenue at $3.9 billion. Nearly the whole amount(96%) came from North America. It is estimated that in 2014, AWS produced $4.2 to $4.5 billion in revenue. The latter is around 75% of Amazon’s total Other revenue.
In 2014, Amazon.com, Inc. (NASDAQ:AMZN) grossed $4.9 billion in capital expenditures. The company has a gamut of items that it purchases to support and grow its business. These range from warehouses, robots, and computer systems for its core retail business and AWS. While Amazon may not give details on how much goes to AWS it is estimated to be a fair percentage. In other words, AWS needs to produce appropriate returns on the capital deployed.
