Amazon Cloud Revenue Could Exceed $500 Million In 2010: Report


The Kindle e-reader may not be Amazon's only cash cow.

Amazon Web Services, the cloud computing division of the Web retail company, is becoming a more important -- and more lucrative -- revenue driver for Amazon as more companies move their business-critical applications to the cloud.

So far, however, determining how much revenue Amazon has driven with AWS, which comprises Amazon's 12 cloud computing offerings like Elastic Compute Cloud (EC2) platform, Simple Storage Service (S3) offering and others, has been a challenge. Amazon doesn't break AWS revenue out when it reports its quarterly earnings and instead lumps it into the "other" revenue category. Amazon has only subtly noted that its AWS sales are growing.

"We're seeing rapid growth in Kindle, Amazon Web Services, third-party sales, and retail," Jeff Bezos, Amazon founder and CEO said in the company's second quarter earnings statement, offering only a glimpse into the cloud offerings' sales.

But a recent report by UBS Investment Research shines a little more light on just how much of money AWS is bringing in for Amazon.

In a report, UBS analysts Brian Pitz and Brian Fitzgerald predict that AWS revenue will hit $500 million in 2010. In 2011 AWS revenue will hit about $750 million, the analysts predict. And come 2014 AWS could capture roughly $2.5 billion in revenue.

UBS' estimates are in line with Citigroup's April 2010 prediction that AWS would generate $650 million for the online book retailer this year.

The UBS predictions indicate that EC2 and S3 will fuel considerable growth for Amazon and are the company's keys to the cloud computing market, according to a GigaOM report.

And while the UBS analysts note that AWS represents a small portion of Amazon's total business -- Amazon had total sales of more than $24.5 billion in 2009 and total sales for the second quarter of 2010 exceeded $6.5 billion -- the analysts expect that AWS will become a more important piece of Amazon's financial puzzle.

UBS expects AWS to contribute roughly 10 cents a share in earnings during 2010, and grow to 22 cents in 2011. And the UBS analysts list AWS' value at between $3.4 billion and $3.8 billion. Additionally, UBS estimated that AWS had a net income of $58.2 million this year and will make $100.7 million next year. From there, that number could reach $393 million come 2014, or 83 cents per share. UBS also predicts that AWS' gross margins will be around 50 percent versus Amazon's gross margins of around 22 percent and 23 percent.

At the same time, UBS estimated that the entire cloud Web services market, which includes Amazon EC2 and S3, is roughly $5 billion to $6 billion and will balloon to $15 billion to $20 billion by 2014.

Amazon and AWS became an early front-runner in the race to the cloud and has become recognized as one of the top cloud computing platforms, offering on-demand IT infrastructure and storage when it launched AWS in 2006. And Amazon has continued to innovate and update its offerings, most recently adding cloud-based high performance computing capabilities earlier this year.

Since the launch of AWS, Amazon has faced a rash of competitors offering similar products, including high-profile foes like Google, IBM and Microsoft. Amazon's most recent competitor, Rackspace and its OpenStack open source cloud computing platform, however, could pose stiff competition to AWS moving forward. OpenStack claims Amazon-like benefits in an open source community environments.