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Business Management

AWS helps Amazon answer the pesky 'profits' question

Critics of Amazon.com have long suggested that the company will never make sustainable profits. The latest stunning numbers for the company suggest they have been proven wrong… but with a twist.

What’s becoming increasingly likely is that Amazon Web Services will outshine Amazon’s other big trick – being “the everything store”. The company yesterday made a record profit of $513m for its first quarter on revenue of over $29bn, leading analysts to recalibrate one of the most complex calculations in business history: what’s Amazon worth?

This is a very complicated company with more parts than a jet engine built by Professor Branestawm. But the crown jewels might well lie in AWS, the innovation platform for a generation of startups. Amazon has always bet that running up losses in its retail division will lead it to a point where it is so far the dominant provider of goods online and has so many loyal customers that it will be able to flick a switch marked ‘FAT PROFITS’. It has also made side bets in pretty well everything under the sun, from videos and screenplays to talking speakers and tablets, in the hope of finding a ‘moonshot’ success or three.

But AWS is already a phenomenon and without its $604m surplus on nearly $2.6bn in revenue Amazon as a whole would still have bled red ink in the quarter. AWS might account for under a tenth of revenue in the $100bn-plus empire but it is the beating heart of the business that will allow Jeff Bezos to make as many wacky forays into other businesses as he likes.

Could that change? Of course, and Microsoft and Google are both ratcheting up their platform operations, but AWS was fast out of the blocks and it iterates at a rapid clip. That has helped Amazon reach a dizzying market cap of $279bn. Even that makes it ‘worth’ not much more than half of Apple and Google today but which brave soul would bet against its further progress now?

 

Related stories:

Google, Amazon, Facebook, Apple: Who will be the GAFA?

Apple and spectacular rise of the tech economy

Amazon, Apple, Google and the race to win it all

Jeff Bezos: The Everywhere Man

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Martin Veitch

Martin Veitch is Contributing Editor for IDG Connect

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