Amazon Partner: No Worries Over Citigroup's Estimate of AWS 2014 Loss
The recent evaluation (educated stab in the dark) from Citigroup concluding that Amazon Web Services notched a not-insignificant loss in 2014, despite billions of dollars in revenue, has again stirred up speculation about what's going on behind the ledgers at the world's biggest cloud.
The Citi analysis released March 27 concluded that Amazon's cloud division, which many analysts believe is likely the most profitable part of the e-commerce giant's entire business, lost $123 million in 2014.
Todd Shaffer, business development executive at Nimbo, an AWS partner based in New York, told CRN that Citi's figures, if true, actually bode well for the company's channel. Running narrow margins is exactly what AWS should be doing in the current marketplace, he said.
[Related: Amazon To Break Out AWS Financials Starting In 2015]
"It would be foolish for them to do anything other than attack this market as voraciously as they did retail in the '90s and '00s. It’s a new market with a near infinite growth opportunity," Shaffer told CRN.
With well-funded competitors like Microsoft, Google and IBM in a race for market share, Shaffer said the bigger surprise would be AWS' posting massive profits, with less investment in its core product.
"A little in the red column is good for partners," Shaffer told CRN. "It means new services, features and data centers."
It's worth noting that Citi, after issuing its report, revised upwards its target for Amazon stock from $405 to $430. That probably also has something to do with the analyst estimating AWS would grow by $2 billion in revenue from 2014 to 2015, with a prediction of a staggering $9.2 billion in revenue by 2016.
Citi's estimates were based on a complicated formula of calculating what's called Comprehensive Segment Operating Income. The bank took into account commentary from management, industry values and the margin structure of Amazon's public cloud competitors.
Citi analyst Mark May noted: "AWS losses are not as great as some believe."
And if AWS climbs north of $9 billion next year, Citi predicts $69 million in profit -- tiny when compared with overall revenue, but profitable nonetheless.
Shaffer, of Nimbo, said the year-over-year growth in the billions is the more relevant number to come out of Citi's report. A short-term loss isn't surprising -- Amazon is comfortable running its business with razor-thin margins that occasionally dip into negative territory.
"The Amazon company ethos overall is growth over profit," Shaffer told CRN.
While speculating can be fun, industry minders will get a chance to stop guessing by the end of this month, when Amazon finally breaks out financials for its public cloud in its Q1 earnings report.
PUBLISHED APRIL 9, 2015