Amazon Grows Revenue, Keeps Cloud Numbers Hidden

As Amazon reported a 35% jump in revenue, it dodged key questions about Kindle Fire and AWS cloud services--namely, whether AWS is helping Amazon's bottom line or still working toward a breakeven point.

Charles Babcock, Editor at Large, Cloud

February 1, 2012

3 Min Read

Szkutak, during the question and answer part of the call, noted that third parties selling via Amazon enjoyed a 65% jump in sales this past holiday season and now account for 36% of Amazon's total paid units sold. In other words, more than a third of Amazon's total sales traffic in everything from chairs to spatulas to books is generated by third parties now.

Amazon's net income dropped 39% to $631 million in 2011 from $1.15 billion in 2010. Earnings per share likewise declined to $1.37 per share from $2.53 per share for the year. In the fourth quarter alone, net income dropped 58% over the same period the year before.

Free cash flow decreased 17% to $2.09 billion for the previous 12 months, compared to $2.52 billion for the 12 months ended Dec. 31, 2010.

Employee head count grew 67% in 2011 to 56,200 full- and part-time workers. "We are investing in many different areas. The majority of new employees go into operations and customer service in support of that growth," said Szkutak.

Results for its cloud services unit, Amazon Web Services, remained hidden in "other" revenue. AWS opened new regional data centers in Oregon and Sao Paolo, Brazil, last year. In a separate statement, AWS used the occasion of the earnings announcement to note one of CTO Werner Vogel's favorite metrics, the number of objects stored in the S3 storage service. It's grown to 762 billion objects, compared to 262 billion the year before. The service has grown rapidly from the 2.9 billion objects that it held at the end of 2006, its first year.

But stored objects are silent about whether AWS cloud services as a whole are racking up profits and contributing to Amazon's bottom line, or still building toward their breakeven point. The viability of cloud computing would be clearer with more transparent reporting. Doubters remain unconvinced that remote, third-party data center infrastructure can be operated profitably at Amazon's rates. That's part of the mystique of the cloud--it's a new and cheaper paradigm, if Amazon has a profitable business.

Some of the things that are known have mainly to do with Amazon's expenses. The Amazon retail operation opened a new fulfillment center in Lexington County, S.C., last year and has a second, $50 million, one-million-square-foot fulfillment center underway this year in Spartanburg County, S.C.

Bezos appears to have decided to forego profits in favor of investing in the burgeoning tablet market, AWS cloud services, and building up the right skills for a well-positioned Internet retail company. If the economy is on a firm path to recovery, he'll take some heat in the short term. Amazon officials never claimed Kindle sales were about to reverse last quarter's poor showing.

But even finicky investors will stop complaining if a stronger economy allows Amazon to quickly capitalize on its new position. On the other hand, more economic troubles in the United States and abroad might mean much deeper trouble for Bezos.

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About the Author(s)

Charles Babcock

Editor at Large, Cloud

Charles Babcock is an editor-at-large for InformationWeek and author of Management Strategies for the Cloud Revolution, a McGraw-Hill book. He is the former editor-in-chief of Digital News, former software editor of Computerworld and former technology editor of Interactive Week. He is a graduate of Syracuse University where he obtained a bachelor's degree in journalism. He joined the publication in 2003.

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