Analyst: Amazon Retail, AWS Split Could Create More Focused Cloud Superpower
Citi Research thinks that Amazon should break up its retail and cloud businesses into two separate companies.
Citi Research analyst Mark May said on Monday that separating Amazon's popular e-commerce business from its dominant cloud division, Amazon Web Services (AWS), would help the company avoid the risk of regulatory pressure, according to a CNBC report.
"I think AWS surprised even (Amazon CEO Jeff) Bezos on how successful it's been -- it now represents more than half of the company's market cap and at least half of the company's cash flow," May said in an interview with CNBC on Monday.
May reiterated his buy rating for Amazon shares and reaffirmed his price target of $2,250 for Amazon shares, according to CNBC. Amazon shares closed down $62.16 on Monday to $1,908.03.
A spokesman for Citi Research, the research arm of the $71.4 billion global bank and financial services firm, declined to to share the research report with CRN and would not comment further on the firm’s analysis.
May told CNBC that the development of AWS is something that Bezos must consider when looking ahead to the future.
Amazon earlier this month briefly became the second publicly-traded U.S.-based company to hit $1 trillion in market valuation. AWS, the 12-year-old-business within Amazon that is the biggest driver of growth for the Seattle-based company today, generated $1.64 billion of the company's $2.98 billion in operating income during the company's second quarter this year. Amazon reported $6.11 billion in AWS revenue during the second quarter—a 49 percent year-over-year growth rate.
After a potential split, Amazon's widely-known retail business aimed largely at consumers would be worth an estimated $400 billion on its own, the analyst said. AWS, on the other hand, is estimated to be worth $600 billion by itself, said May.
Ethan Simmons, managing partner at Pinnacle Technology Partners, Inc., a cloud-focused MSP that works with AWS, could benefit the channel.
"I could see some benefits in having AWS stand on its own and be a separate entity with its own focus and leadership structure, Simmons said. "I think it could help with the way partners and businesses interact with Amazon."
AWS did not return CRN's request for comment before publication time, but AWS CEO Andy Jassy addressed the very question of whether AWS will spin off from Amazon during a press conference last November at AWS Re:Invent.
“I’ve been at Amazon for 20 years, and I’ve learned to never say never. But I’d be very surprised, because there isn’t a need to do so,” Jassy said.
May's report also noted that President Donald Trump has publicly criticized Amazon on many occasions on Twitter and has suggested that his administration could potentially go after the Internet giant for antitrust issues. The company's trillion-dollar valuation and founder and Bezos' status as the world's richest man isn't helping that cause, according to May.
"I think all you can do if you're a business that is broad like we are is just focus on what customers want. The thing you can control is providing a great customer experience," Jassy said in an interview in May when asked about the president's tweets about Amazon. "That's the thing we've focused on for the past 23 years through many presidents, and that's the thing we'll continue to focus on for the next 23."
AWS is one of the tech giants that is currently battling to be the winner of the $10 billion military cloud contract. The U.S. Department of Defense at the end of August extended the submission deadline for the project, known as JEDI (Joint Enterprise Defense Infrastructure), to Oct. 9.