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Investment Firm: Amazon Will Spin Off AWS In 2015

The Edge Consulting Group, which forecast the eBay and Symantec breakups, said an Amazon Web Services spinoff could be worth as much as $38 billion.

A leading investment research firm with a good track record in calling corporate breakups has predicted Amazon will spin off its Amazon Web Services (AWS) business next year.

London-based The Edge Consulting Group, a firm that specializes in corporate breakups, said an AWS spinoff could raise the fortunes of Amazon's shareholders while sparking a bidding war for the world's largest public cloud. The Edge Consulting Group estimated AWS' value on the open market could reach $38 billion.

The Edge Consulting Group, which forecast the eBay and Symantec breakups, also speculated that an independent AWS would be a prime acquisition target for cloud-centric companies such as Salesforce.com or VMware.

[Related: AWS Cloud Lone Bright Spot For Amazon In Q3]

John Keagy, founder and CEO of GoGrid, a competitor of AWS in the cloud infrastructure market, told CRN the breakup speculation makes a lot of sense. "People understand AWS enough now to know that it isn’t just a play to repurpose the compute power not used by the retail operation outside of the Christmas shopping season," said Keagy.

With Amazon's quarterly losses and low-margin retail business irking investors, spinning off AWS would trigger a re-rating of Amazon's overall business at a more favorable valuation, according to The Edge Consulting Group.The financial investment firm estimated that an AWS spinoff would raise the total valuation of Amazon to a combined value of $195 billion, a 36 percent increase from the current valuation.

At this year's AWS re:Invent conference, Amazon Senior Vice President Andy Jassy told attendees that Amazon founder and CEO Jeff Bezos was still "very excited" and optimistic that AWS would one day be Amazon's greatest source of profits. About a year ago, Bezos said he believed AWS could become Amazon's biggest business.

But Amazon's repeated failure to turn quarterly profits has cast intense financial pressure on the online retail king. Amazon posted a loss of $437 million on a 20 percent increase in sales to $20.58 billion for its third quarter ended Sept. 30.

Amazon shares are down 24 percent this year, falling $11.01, or 3.6 percent, Tuesday to $295.06 -- $11.06 off the 52-week low of $284. The 52-week high for Amazon shares is $408.06.

Because Amazon doesn't break out financial data for its cloud business, instead lumping AWS earnings in the category of "other," it's unclear how profitable the cloud business really is, or what impact it has on the larger company's bottom line.

AWS has been regularly lowering its cloud services prices as it engages in a price war with competitive offerings such as the Google Cloud Platform and Microsoft Azure.

PUBLISHED DEC. 16, 2014

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