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10/24/2013
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Amazon Web Services Revenue: New Details

Amazon reports higher-than-expected revenues in third quarter. Service revenues from AWS represent 84% of the monies in Amazon's long-shrouded "other" balance sheet category, analysts said.

Amazon Web Services' revenues are on track to hit the $1 billion mark in the fourth quarter. If they do, AWS will have generated an estimated $3.2 billion in revenues for parent company Amazon.com in 2013 -- a striking accomplishment for a business still in the "other" category on the balance sheet.

The estimates, from Technology Business Research analysts Jillian Mirandi and Michael Barba, were released Thursday during a teleconference held by Amazon CFO Tom Szkutak. AWS revenues in the third quarter alone are estimated at $850 million, more than double those in the third quarter a year ago. In both the second and third quarters, AWS revenues grew by 136% over the same periods a year earlier, according to TBR analysts. Service revenues generated by AWS represent 84% of the monies in the "other" category, they said.

Amazon itself doesn't release details of the "other" category, but even Szkutak had trouble containing his enthusiasm. "In terms of AWS, it's growing very, very strong," he said. "It's an area that's very early for us. We have a great team that's working on it, servicing customers, and we are very excited about the long-term opportunity."

[ Want to learn more about why VMware sees Amazon as its prime competitor? See Don't Count VMware Out In Rough Seas. ]

That's a marked contrast to the veil of silence that Amazon has tried to keep over the "other" category in the past. Amazon.com took the lessons of its early e-commerce system, built to scale, and reapplied them to build infrastructure-as-a-service. It was its own largest customer, of course, but adding more capacity than needed, as CTO Werner Vogels advocated, meant it had a new service it could sell.

Amazon IaaS was born in 2006 as a new business unit. But Amazon mixed the cost of the added AWS capacity into the general expansion of Amazon.com, making it harder for the company to look profitable. That also made it harder for stockholders to see the expense and prevented them from demanding more of the proceeds. Had they understood how much was being invested in the new service, they might have demanded more profitability from Amazon.com (the retail company), and shareholder dividends. It's been an amazing balancing act by founder and CEO Jeff Bezos, who is fortunately also the firm's largest stockholder.

Szkutak reported that third quarter earnings per share were -$.09. Wall Street is used to Amazon.com reporting losses, and that amount was expected, according to Business Insider. Worldwide revenues, however, totaled $17.09 billion -- $1 billion more than expected. That figure is up 24% over the $13.81 billion in the third quarter last year.

The net loss for the quarter was $41 million, compared to $274 million last year.

Most companies reporting multiple quarters of losses lose value in their stock price. Amazon is viewed as something of a juggernaut -- a company building for the future. It ended the day up 1.5% at $332, and shot up to $359 in afterhours following the third-quarter announcement.

Szkutak reported that the company has invested $4.6 billion in its business over the past year, including $1.4 billion to purchase the building that houses its Seattle headquarters. "The increase in capital expenditures reflects additional investments in support of our continued business growth consisting of investments in technology infrastructure, including Amazon Web Services," said Szkutak during the teleconference.

The callout of AWS in an investment in the business is another refection of Amazon's confidence in the cloud business unit. Instead of disguising the money pouring into AWS, Amazon.com may start breaking it out as one of its most successful spinoffs of the retail operation. In the past the company has talked about investment in fulfillment centers -- seven are currently under construction – and in its Kindle Fire tablets. In the second quarter, it talked about its deal with Viacom for video content for its Prime download service, a competitor with Netflix. A direct reference to investment in AWS is a sign that Bezos and Szkutak believe AWS is on a solid revenue footing and growth path.

Asked what impact the U.S. government shutdown had on its operations in September and October, Szkutak said Amazon's growth was strong in spite of it and he saw no impact.

Trailing 12-month capital expenditures were $4.59 billion, Szkutak said. "This amount includes $1.4 billion in purchases of our previously leased corporate office space as well as property for development of additional corporate office space located in Seattle, Washington, which we purchased in the fourth quarter of 2012. The increase in capital expenditures reflects additional investments in support of our continued business growth consisting of investments in technology infrastructure, including Amazon Web Services and additional capacity to support our fulfillment operations."

Szkutak's guidance for the fourth quarter, by far Amazon's largest of the year, anticipates revenues between $22.5 and $26.5 billion, with a resulting in operating income loss of either $500 million or a gain of $500 million, an even $1 billion spread for the upcoming quarter. Few companies can boast of that. Last year, Amazon experienced a $405 million gain in the quarter. It will pay out $350 million amortizing intangible assets and fulfilling stock-based compensation in the quarter.

Amazon.com will focus on giving customers favorable prices, broad selection and convenience in shopping during the quarter, Szkutak said, adding, "We believe putting the customer first is the only reliable way to create lasting value for shareholders."

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RobPreston
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RobPreston,
User Rank: Author
10/28/2013 | 3:19:26 PM
re: Amazon Web Services Revenue: New Details
The difference is that EMC didn't build VMware from scratch. It acquired it. One wonders whether Amazon would spin out its hottest growth business when the margins in its core business, retail, are so tight. What would that spinoff then do to Amazon's stock price? I don't pretend to know the answer.
cbabcock
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cbabcock,
User Rank: Strategist
10/25/2013 | 10:48:09 PM
re: Amazon Web Services Revenue: New Details
Amazon.com CFO Tom Szkutak's willingness to talk about Amazon Web Services revenues with greater frankness will probably continue in future quarters. It's a bright spot in an otherwise loss-dominated financial outlook. If Amazon.com is really building the retail powerhouse of the future, will it one day spin out AWS as a separate unit, as EMC spun out VMware?
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