Amazon Web Services: 2016 In Review
Amazon‘s (NASDAQ:AMZN) stock is up about 14% year-to-date (YTD) and 17% in the last year following solid financial results in the first three quarters. The company significantly outperformed expectations in the first six months of 2016 but missed bottom line estimates in the third quarter. In the first nine months of the year, Amazon registered 29% growth in revenue to over $92 billion and 161% growth in operating income to $2.9 billion, driven by solid growth across divisions – especially Amazon Web Services (AWS), the company’s public cloud division.
In this note, we focus on the AWS division and its importance for Amazon’s growth and valuation.
- Contribution To Valuation: AWS contributes about 35% of Amazon’s valuation, per our estimates.
- Contribution To Revenue & EBITDA: AWS is expected to contribute less than 9% of Amazon’s revenues in 2016 but 23% of its EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization).
- AWS In 2016 So Far: AWS contributed less than 10% of Amazon’s revenues but over 20% of its EBITDA, as well as a majority of its operating income. Amazon’s increasing focus on constantly improving and expanding its AWS business stems from the fact that it consistently contributes over three-fourths of the company’s profits and has a considerably higher operating margin than Amazon’s e-commerce business. In the first nine months of 2016, AWS had an operating margin of over 25% compared to Amazon’s company-wide operating margin of just 3.2%.
- Dominant Market Share: AWS was ranked first again in Gartner’s Magic Quadrant for cloud infrastructure services in Q2 2016, followed by Microsoft, IBM (NYSE:IBM) and Google (NASDAQ:GOOGL). Amazon has been a leader in this market since 2006, owing to its wide array of Infrastructure-as-a-Service (IaaS) and Platform-as-a-Service (IaaS) offerings, and has consistently improved its market share.
Amazon is aiming to make its cloud offering more comprehensive to counter the increasing competition in the sector. Although the company is the leader in the global cloud infrastructure services market, with a share of over 31%, other major players such as Microsoft, IBM and Google are slowly gaining share and growing at an impressive pace.
Have more questions about Amazon? Please refer to our complete analysis for Amazon
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