Cloud // Infrastructure as a Service
Commentary
1/7/2013
10:29 PM
Charles Babcock
Charles Babcock
Commentary
Connect Directly
Twitter
RSS
E-Mail
50%
50%
Repost This

Amazon's Cloud Revenues, Examined

Two analyst firms upgrade Amazon Web Services for broad growth potential; one factor is a growing number of large customers.

Amazon.com's Web Services unit is gaining larger cloud customers than the developers and startups who first found a home on its EC2 compute service. That's one reason two analyst houses have come out with upside predictions for the firm.

The previously faltering stock moved toward recovery yesterday after Morgan Stanley analyst Scott Devitt upgraded his rating on the NASDAQ-traded equity to "overweight." The stock went up $9.31, or 3.59%, in a day to close at $268.46 -- its highest level ever. If it were broken out into a separate company today, AWS would be worth $19-$30 billion, with a share price of $41 to $66. The high end might be justified because Amazon's EC2 is moving beyond startups to enterprise customers who are starting to rely on its services.

In addition, the Australian firm Macquarie Securities Group came out with an estimate of $2 billion in Amazon Web Services' revenues in 2012, or about 33% higher than the $1.5 billion I had previously been told.

[ Want to learn more about a recent Amazon setback? See Amazon's Dec. 24th Outage: A Closer Look. ]

Jason Hoffman, CTO of Joyent in San Francisco, has experience building cloud infrastructure. In an interview in early November 2012, he predicted that Amazon was headed toward revenues of $1.5 billion for the year. Asked yesterday whether he had revised his estimate, he said yes -- the earlier estimate had been based on Amazon.com's reported revenues in the "other" category in June. On Oct. 25, Amazon reported its "other" revenues for North America were $1.6 billion for the first nine months of 2012 versus $972 million for the first nine months of 2011.

Hoffman said knowledgeable observers can watch spending by companies that build out AWS' infrastructure under their own names and the "other" category of Amazon revenues to come up with their own estimates of where its cloud services are headed.

Hoffman added, however, that Macquarie has strong contacts inside of Amazon and has historically been confident in estimating Amazon Web Services revenues. "If anybody is going to come within 10% of Amazon's actual revenues, they [Macquarie] are," he said in an interview. Hoffman also meets every quarter with Macquarie analyst Brad Zelnick to trade notes on cloud developments. Zelnick was a contributor to the Macquarie report. According to Hoffman, one driver of growth in Amazon cloud computing is bigger customers who use big data. Instead of investing in installing new large systems, many companies are opting to analyze their big data in the cloud. "[Joyent] has found this to be the case too," he noted, as it runs more new Hadoop systems.

Macquarie projected AWS 2013 revenues of $3.8 billion; 2014 revenues of $6.2 billion; and 2015 revenues of $8.8 billion, according to lead analyst Benjamin Schachter, who was cited by ZDNet in a report yesterday.

These figures are larger than any analyst firms have previously predicted. In addition, Schachter claimed Amazon's cloud services are "a 100% gross margin business for Amazon" because it is not breaking out any costs separate from its retail operation as having stemmed from its AWS unit.

Hoffman pointed out that no cloud service is actually 100% gross margin because service providers must invest in infrastructure and operations. But if managed correctly, cloud services can yield margins higher than Amazon's retail operations of 4%. Hoffman said the upper range was probably in the 40-50% realm.

"As AWS grows faster than Amazon's retail business, the gross margin profile for the entire company changes," predicted Schachter in the report. "Storage growth for AWS' S3 services is exponential and can carry growth for years."

AWS is also believed to be still tapping the surface of a large and growing market. According to the 451 Group's ChangeWave survey from late October, 402 out of 1,190 companies surveyed (34%) are now public cloud users. That's up 12% from a year ago.

Gartner recently predicted that the total cloud computing market will grow to $148 billion by 2014; Forrester was somewhat more conservative, predicting $118 billion a year.

Cloud Connect returns to Silicon Valley, April 2-5, 2013, for four days of lectures, panels, tutorials and roundtable discussions on a comprehensive selection of cloud topics taught by leading industry experts. Join us in Silicon Valley to see new products, keep up-to-date on industry trends and create and strengthen professional relationships. Use Priority Code DIWEEK by Jan. 12 to save up to $700 with Super Early Bird Savings. Register for Cloud Connect now.

Comment  | 
Print  | 
More Insights
Comments
Oldest First  |  Newest First  |  Threaded View
EricLundquist
50%
50%
EricLundquist,
User Rank: Apprentice
1/8/2013 | 11:50:23 PM
re: Amazon's Cloud Revenues, Examined
Great article, Amazon is becoming a major force in the tech infrastructure business. I'd love to know what those customers are moving away from as they head to Amazon. This will be a pivotal year for Amazon, Rackspace and the other cloud providers.
Greg MacSweeney
50%
50%
Greg MacSweeney,
User Rank: Apprentice
1/9/2013 | 1:22:52 PM
re: Amazon's Cloud Revenues, Examined
These revenue numbers are...just wow! Although, the numbers are large, they are not really "shocking." AWS has been growing for a few years and it was only a matter of time before larger enterprises started turning to the public cloud.
pblanc108
50%
50%
pblanc108,
User Rank: Apprentice
1/9/2013 | 5:54:46 PM
re: Amazon's Cloud Revenues, Examined
Wow you guys must be on the amazon payroll or are looking for business from the mater manipulator.. Bezos. AWS is horribly unstable and amazon has to keep lowering their prices for the service to rope in customers.
Get with the Wall Street agenda. The upgrade from Morgan Stanley came for one reason... to once again deceive the general public and make more money. Amazon recently issued a 3 billion debt offering ( they are taking on debt because they are lsoign money hand over fist and burning through cash on hand).
Now, who do you think structured the debt offering and raked in millions in fees... you guessed it Morgan Stanley. The analyst you mention, Scott Dewitt, was under pressure to raise the stock price. Incidentally, Scott downgraded the stock when is was $180, now he upgrades it when its $260. He works for Morgan and raised the price so Morgan can pump and dump the stock to its sheep customers. Goldman Sachs also hepled with the underwriting, so youll hear an upgrade from them soon to. Its a dirty business and sadly its the naive public will be left holding amazon when these companies dump it behind the scenes.
Amazon does nothing proprietary and must try to undercut the competition on price to attract new customers and artificially inflate their revenue growth. Amazon spends $1 to earn .90 cents. They lost 468 million last quarter.
There is no compelling reason to shop amazon as far better deals can be found elsewhere. I saved thousands by searching the internet for more competitive pricing. thefind.com shows many vendors who offer much cheaper pricing than amazon. Amazon prime is also a rip off as every vendor offers free shipping so way pay $79 for the priviledge. Sites like Crackle dot com offer free video streaming and music. Amazon does nothing proprietary and their Kindle was voted as one of the worst products of the year by Bloomberg. Try one, you'll understand what a hunk of junk it is. It is not designed for a rich user experience like the iPad, but raher to get people to buy more overpriced junk from their website.
Do your own research and you'll find that amazon is collusively owned by a few hedge funds who keep the stock inflated due to investment relations with amazon. It is the most manipulated stock on Wall Street.
pblanc108
50%
50%
pblanc108,
User Rank: Apprentice
1/9/2013 | 7:39:32 PM
re: Amazon's Cloud Revenues, Examined
Why didn't you post my honest comments as to why amazon's stock was upgraded. It was not due to any great happenings at amazon- they have been losing money for years. The same analyst that upgraded the stock from Morgan Stanley was the same guy who downgraded amazon at $180.00 per share. Morgan Stanley, along with Goldman Sachs underwrote amazon's recent 3 billion dollar debt offering. The upgrade came as a favor for amazons business. Amazon lost 468 million last quarter and must tale on debt and private equity financing to keep afloat. Other wise, they would quickly burn through their cash on hand. For this investment banking business, the hedge funds and private equity artificially keep amazon's stock price at nosebleed levels. I have sent this as well as my last post that you did not print to over 150 of my peers. If it , as well as the last post of mine do not get printed, we will all know that you are just as crooked as Bezos and his Wall St croonies.
Tom LaSusa
50%
50%
Tom LaSusa,
User Rank: Apprentice
1/9/2013 | 9:24:38 PM
re: Amazon's Cloud Revenues, Examined
pblanc108,

Not sure what happened to your previous comment. We never delete comments because we disagree with them. Comments are only deleted/edited if they are inflammatory, derogatory, etc. or obvious SPAM. We also approve any comments that contain a URL in them to help curtail the SPAM.

I checked both our SPAM filter and our comments pending approval -- I saw nothing from you. But since your comment above successfully posted, I'll assume the issue is resolved for now.

If anything like that happens again, do not hesitate to reach out to me directly at toml.lasusa@ubm.com and I'll try to figure out why your comments aren't posting.

Regards
Tom LaSusa
InformationWeek Community Manager
2014 Private Cloud Survey
2014 Private Cloud Survey
Respondents are on a roll: 53% brought their private clouds from concept to production in less than one year, and 60% ­extend their clouds across multiple datacenters. But expertise is scarce, with 51% saying acquiring skilled employees is a roadblock.
Register for InformationWeek Newsletters
White Papers
Current Issue
Video
Slideshows
Twitter Feed
Audio Interviews
Archived Audio Interviews
GE is a leader in combining connected devices and advanced analytics in pursuit of practical goals like less downtime, lower operating costs, and higher throughput. At GIO Power & Water, CIO Jim Fowler is part of the team exploring how to apply these techniques to some of the world's essential infrastructure, from power plants to water treatment systems. Join us, and bring your questions, as we talk about what's ahead.