AMZN - Amazon.com Inc.

[rkbabang]

I also buy almost everything from Amazon. There is the convenience, but more importantly, peace of mind. If anything goes wrong, I know Amazon will resolve the issue almost without any friction. I'm willing to pay premium for this (in the form of Prime fee + higher prices for some products).

 

BTW, we should never forget about AWS when discussing Amazon's business or valuation... it will surpass the retail business sooner or later.

 

 

This is the same for me.  I actually get irritated when I want something specific and I can't find it on Amazon.  Most recently I wanted a specific lockset for my front door ordered with bright brass on the outside and oil rubbed bronze on the inside and keyed to a specific code.  I couldn't customize it that way if I bought it on amazon, so I had to order it somewhere else (http://www.doorhardwarecenter.com/).  We order almost everything except what we buy from the grocery store at Amazon.com, even clothes/shoes for me and my son.  My wife and daughter still like to going to physical stores to shop for clothes.

 

[rishig]

Doesn't the retail business depend on AWS?

 

Can you clarify what you mean?

[racemize]

BTW, we should never forget about AWS when discussing Amazon's business or valuation... it will surpass the retail business sooner or later.

 

AWS single-handedly made me change my mind from Amazon was way too highly priced to thinking the price makes a lot more sense (still seems expensive though, using somewhat conservative growth rates and multiples).

[Guest Schwab711]

Doesn't the retail business depend on AWS?

 

Can you clarify what you mean?

 

It seems like the retail business and side projects require AWS for capacity. Who else has the capacity that amazon.com would require? Otherwise there'd be a whole transfer pricing problem, a la Pandora/Spotify. It's not like Google could sell their servers and rent them back. It's a critical asset to maintain up-time, capture data on their customers, and so on. Otherwise, I'd love to be Amazon's landlord for operationally critical assets.

 

All the pieces of Amazon seem necessary to keep the machine running.

[Liberty]

At the AWS conference keynote they mentioned that AWS was adding as much server capacity daily now as the whole of Amazon.com used in 2008.

 

Amazon.com is certainly a big customer of AWS, but at this point, the thing doesn't depend on it in any way, IMO.

[Guest Schwab711]

At the AWS conference keynote they mentioned that AWS was adding as much server capacity daily now as the whole of Amazon.com used in 2008.

 

Amazon.com is certainly a big customer of AWS, but at this point, the thing doesn't depend on it in any way, IMO.

 

Thanks, this is what I've been trying to find. I'll look for this presentation.

[Liberty]

At the AWS conference keynote they mentioned that AWS was adding as much server capacity daily now as the whole of Amazon.com used in 2008.

 

Amazon.com is certainly a big customer of AWS, but at this point, the thing doesn't depend on it in any way, IMO.

 

Thanks, this is what I've been trying to find. I'll look for this presentation.

 

I think it was this one, but I could be misremembering:

 

Update: Oh wait, maybe it was this one:

 

Update 2: Yep, it's in the James Hamilton presentation. I got my numbers slightly mixed up, but it was also for 2015..

 

[rkbabang]

At the AWS conference keynote they mentioned that AWS was adding as much server capacity daily now as the whole of Amazon.com used in 2008.

 

Amazon.com is certainly a big customer of AWS, but at this point, the thing doesn't depend on it in any way, IMO.

 

AWS doesn't depend on Amazon.com's retail operation, but Amazon.com's retail operation does depend on AWS.

 

[Liberty]

At the AWS conference keynote they mentioned that AWS was adding as much server capacity daily now as the whole of Amazon.com used in 2008.

 

Amazon.com is certainly a big customer of AWS, but at this point, the thing doesn't depend on it in any way, IMO.

 

AWS doesn't depend on Amazon.com's retail operation, but Amazon.com's retail operation does depend on AWS.

 

Define "depends". If you mean that it currently runs on it, then yes. If you mean that it couldn't be hosted elsewhere, then I don't think so.

 

It is hosted on AWS, and as a very large operation, it would be hard to migrate. But if Amazon for some reason told MSFT or GOOGL that they wanted to host their sites on their platform, it could be done as long as there's enough advance notice and migration time.

[rishig]

At the AWS conference keynote they mentioned that AWS was adding as much server capacity daily now as the whole of Amazon.com used in 2008.

 

Amazon.com is certainly a big customer of AWS, but at this point, the thing doesn't depend on it in any way, IMO.

 

AWS doesn't depend on Amazon.com's retail operation, but Amazon.com's retail operation does depend on AWS.

 

Define "depends". If you mean that it currently runs on it, then yes. If you mean that it couldn't be hosted elsewhere, then I don't think so.

 

It is hosted on AWS, and as a very large operation, it would be hard to migrate. But if Amazon for some reason told MSFT or GOOGL that they wanted to host their sites on their platform, it could be done as long as there's enough advance notice and migration time.

 

Why are we talking about whether Amazon.com can be run on anything but AWS. I am not sure I understand the relevance of this discussion. This is similar to asking "Can Google.com (Search, Maps, YouTube) be run on anything but Google's data centers".

[Liberty]

¯\_(ツ)_/¯

 

Someone asked, and I thought it was an interesting thought experiment.

[rishig]

¯\_(ツ)_/¯

 

Someone asked, and I thought it was an interesting thought experiment.

 

Yes, I am asking the question to the person that asked the question. IMO - this is an interesting thought experiment but very likely irrelevant.

[rkbabang]

At the AWS conference keynote they mentioned that AWS was adding as much server capacity daily now as the whole of Amazon.com used in 2008.

 

Amazon.com is certainly a big customer of AWS, but at this point, the thing doesn't depend on it in any way, IMO.

 

AWS doesn't depend on Amazon.com's retail operation, but Amazon.com's retail operation does depend on AWS.

 

Define "depends". If you mean that it currently runs on it, then yes. If you mean that it couldn't be hosted elsewhere, then I don't think so.

 

It is hosted on AWS, and as a very large operation, it would be hard to migrate. But if Amazon for some reason told MSFT or GOOGL that they wanted to host their sites on their platform, it could be done as long as there's enough advance notice and migration time.

 

Sure, "could".  But profitably.  I don't think Amazon would want to be at the mercy of Google or Microsoft anymore than Google would want to run its operations completely on AWS or Microsoft.    My point was that owning AWS gives Amazon.com an advantage over the competition, but AWS having Amazon.com as a "customer" doesn't necessarily give AWS any advantage.  Thus the retail "needs" the cloud operation, but the cloud operation doesn't need the retail.  If that makes any sense?

 

 

 

[abyli]

At the AWS conference keynote they mentioned that AWS was adding as much server capacity daily now as the whole of Amazon.com used in 2008.

 

Amazon.com is certainly a big customer of AWS, but at this point, the thing doesn't depend on it in any way, IMO.

 

AWS doesn't depend on Amazon.com's retail operation, but Amazon.com's retail operation does depend on AWS.

 

Define "depends". If you mean that it currently runs on it, then yes. If you mean that it couldn't be hosted elsewhere, then I don't think so.

 

It is hosted on AWS, and as a very large operation, it would be hard to migrate. But if Amazon for some reason told MSFT or GOOGL that they wanted to host their sites on their platform, it could be done as long as there's enough advance notice and migration time.

 

Sure, "could".  But profitably.  I don't think Amazon would want to be at the mercy of Google or Microsoft anymore than Google would want to run its operations completely on AWS or Microsoft.    My point was that owning AWS gives Amazon.com an advantage over the competition, but AWS having Amazon.com as a "customer" doesn't necessarily give AWS any advantage.  Thus the retail "needs" the cloud operation, but the cloud operation doesn't need the retail.  If that makes any sense?

 

No, it makes no sense at all. AWS is a total different new business, it could be as valuable as the retail business if not more valuable in a few years... Think how big is the IT business and what percentage will move to cloud?

[rishig]

At the AWS conference keynote they mentioned that AWS was adding as much server capacity daily now as the whole of Amazon.com used in 2008.

 

Amazon.com is certainly a big customer of AWS, but at this point, the thing doesn't depend on it in any way, IMO.

 

AWS doesn't depend on Amazon.com's retail operation, but Amazon.com's retail operation does depend on AWS.

 

Define "depends". If you mean that it currently runs on it, then yes. If you mean that it couldn't be hosted elsewhere, then I don't think so.

 

It is hosted on AWS, and as a very large operation, it would be hard to migrate. But if Amazon for some reason told MSFT or GOOGL that they wanted to host their sites on their platform, it could be done as long as there's enough advance notice and migration time.

 

Sure, "could".  But profitably.  I don't think Amazon would want to be at the mercy of Google or Microsoft anymore than Google would want to run its operations completely on AWS or Microsoft.    My point was that owning AWS gives Amazon.com an advantage over the competition, but AWS having Amazon.com as a "customer" doesn't necessarily give AWS any advantage.  Thus the retail "needs" the cloud operation, but the cloud operation doesn't need the retail.  If that makes any sense?

 

Amazon retail business needs cloud. So does any service on the internet run by any company need the cloud. Not sure what the point is.

[rkbabang]

At the AWS conference keynote they mentioned that AWS was adding as much server capacity daily now as the whole of Amazon.com used in 2008.

 

Amazon.com is certainly a big customer of AWS, but at this point, the thing doesn't depend on it in any way, IMO.

 

AWS doesn't depend on Amazon.com's retail operation, but Amazon.com's retail operation does depend on AWS.

 

Define "depends". If you mean that it currently runs on it, then yes. If you mean that it couldn't be hosted elsewhere, then I don't think so.

 

It is hosted on AWS, and as a very large operation, it would be hard to migrate. But if Amazon for some reason told MSFT or GOOGL that they wanted to host their sites on their platform, it could be done as long as there's enough advance notice and migration time.

 

Sure, "could".  But profitably.  I don't think Amazon would want to be at the mercy of Google or Microsoft anymore than Google would want to run its operations completely on AWS or Microsoft.    My point was that owning AWS gives Amazon.com an advantage over the competition, but AWS having Amazon.com as a "customer" doesn't necessarily give AWS any advantage.  Thus the retail "needs" the cloud operation, but the cloud operation doesn't need the retail.  If that makes any sense?

 

No, it makes no sense at all. AWS is a total different new business, it could be as valuable as the retail business if not more valuable in a few years... Think how big is the IT business and what percentage will move to cloud?

 

OK I'll try this one more time.    Amazon's retail operation has an advantage over JimAndBobsOnlineStore.com because Amazon owns the cloud business and isn't at the mercy of another cloud provider's toolset, prices, uptime, etc...

 

AWS is, as you said, a completely separate business and doesn't really have any advantage over Google or Microsoft because Amazon.com runs on it.

 

If you think that Amazon.com's retail operations gain nothing over the competition from owning AWS rather than running its operation on Google then my point is moot and they are completely separate businesses which gain nothing from being together under one company,  like Geico and Jordan's Furniture, nothing to do with one another.

 

[rkbabang]

If neither AWS or Amazon.com gain any advantage from being together, should Amazon spin off AWS?

 

[Guest Schwab711]

¯\_(ツ)_/¯

 

Someone asked, and I thought it was an interesting thought experiment.

 

Yes, I am asking the question to the person that asked the question. IMO - this is an interesting thought experiment but very likely irrelevant.

 

Yeah, I only brought it up because someone mentioned that AWS should have a higher multiple than the retail business. I don't think a SOTP valuation makes much sense because I don't think they can break up the parts, but I get why people look at it like that. My question was my awkward way of saying all that.

 

rkbabang is saying everything I want to so see posts above for clarification.

[rishig]

¯\_(ツ)_/¯

 

Someone asked, and I thought it was an interesting thought experiment.

 

Yes, I am asking the question to the person that asked the question. IMO - this is an interesting thought experiment but very likely irrelevant.

 

Yeah, I only brought it up because someone mentioned that AWS should have a higher multiple than the retail business. I don't think a SOTP valuation makes much sense because I don't think they can break up the parts, but I get why people look at it like that. My question was my awkward way of saying all that.

 

rkbabang is saying everything I want to so see posts above for clarification.

 

I don't think Amazon will spinoff their cloud business and unlikely that any of the other public cloud providers. Growing the cloud business is capex intensive and the public cloud companies can use the cash flows from profitable cash generating businesses to grow the cloud business. IMO, it would be short-term thinking to do such a spinoff for any of these (AMZN, MSFT, GOOG, BABA).

 

Having said that, I don't think applying a simple multiple to Amazon on an overall basis makes sense. There are four different businesses that need to be valued differently.

1. US retail 1P business

2. International retail (money losing given startup mode) business

3. 3P + services business

4. AWS

 

One can then apply some holding company discount, given that it is unlikely to ever be split.

[rishig]

At the AWS conference keynote they mentioned that AWS was adding as much server capacity daily now as the whole of Amazon.com used in 2008.

 

Amazon.com is certainly a big customer of AWS, but at this point, the thing doesn't depend on it in any way, IMO.

 

AWS doesn't depend on Amazon.com's retail operation, but Amazon.com's retail operation does depend on AWS.

 

Define "depends". If you mean that it currently runs on it, then yes. If you mean that it couldn't be hosted elsewhere, then I don't think so.

 

It is hosted on AWS, and as a very large operation, it would be hard to migrate. But if Amazon for some reason told MSFT or GOOGL that they wanted to host their sites on their platform, it could be done as long as there's enough advance notice and migration time.

 

Sure, "could".  But profitably.  I don't think Amazon would want to be at the mercy of Google or Microsoft anymore than Google would want to run its operations completely on AWS or Microsoft.    My point was that owning AWS gives Amazon.com an advantage over the competition, but AWS having Amazon.com as a "customer" doesn't necessarily give AWS any advantage.  Thus the retail "needs" the cloud operation, but the cloud operation doesn't need the retail.  If that makes any sense?

 

No, it makes no sense at all. AWS is a total different new business, it could be as valuable as the retail business if not more valuable in a few years... Think how big is the IT business and what percentage will move to cloud?

 

OK I'll try this one more time.    Amazon's retail operation has an advantage over JimAndBobsOnlineStore.com because Amazon owns the cloud business and isn't at the mercy of another cloud provider's toolset, prices, uptime, etc...

 

JimAndBobsOnlineStore.com is also going to experience far better development velocity, lower prices, and higher uptime when they run their service in a public cloud run by the top three providers (AMZN, MSFT, GOOG) on a e-commerce platform by Shopify or Magento compared to doing everything in house. That is the real value proposition.

 

You don't have to take my word for it. I recommend you talk to customers (startups or large enterprises) to understand if this is true.

[Guest Schwab711]

¯\_(ツ)_/¯

 

Someone asked, and I thought it was an interesting thought experiment.

 

Yes, I am asking the question to the person that asked the question. IMO - this is an interesting thought experiment but very likely irrelevant.

 

Yeah, I only brought it up because someone mentioned that AWS should have a higher multiple than the retail business. I don't think a SOTP valuation makes much sense because I don't think they can break up the parts, but I get why people look at it like that. My question was my awkward way of saying all that.

 

rkbabang is saying everything I want to so see posts above for clarification.

 

I don't think Amazon will spinoff their cloud business and unlikely that any of the other public cloud providers. Growing the cloud business is capex intensive and the public cloud companies can use the cash flows from profitable cash generating businesses to grow the cloud business. IMO, it would be short-term thinking to do such a spinoff for any of these (AMZN, MSFT, GOOG, BABA).

 

Having said that, I don't think applying a simple multiple to Amazon on an overall basis makes sense. There are four different businesses that need to be valued differently.

1. US retail 1P business

2. International retail (money losing given startup mode) business

3. 3P + services business

4. AWS

 

One can then apply some holding company discount, given that it is unlikely to ever be split.

 

I'm buying what you're selling.

 

Edit: I don't want to add another post. I'm just saying that if you are going to blend the multiple, I would have said a discount is necessary. You also qualified it exactly as I would have. The only reason I added the comment is to confirm that I agree it is a reasonable methodology. Otherwise, it would have looked like I thought SOTP was an unreasonable method under all circumstances and that's not my opinion. I'm fairly flexible on approach (at least with AMZN specifically), as long as all assumptions are both true and reasonable. If I had to critique your post, my first inclination would be AWS is only ever be worth the cash flows it will generate, so I'd prefer a DCF if possible. Putting a multiple on it may be more accurate, given the data available. I just don't know enough about AMZN to be able to confidently opine either way. The only point of the above was to say I agree so that my history shows I am not completely against a SOTP valuation for AMZN and I wanted to say it in a less boring way than "I agree". Hope that helps clarify.

[rishig]

¯\_(ツ)_/¯

 

Someone asked, and I thought it was an interesting thought experiment.

 

Yes, I am asking the question to the person that asked the question. IMO - this is an interesting thought experiment but very likely irrelevant.

 

Yeah, I only brought it up because someone mentioned that AWS should have a higher multiple than the retail business. I don't think a SOTP valuation makes much sense because I don't think they can break up the parts, but I get why people look at it like that. My question was my awkward way of saying all that.

 

rkbabang is saying everything I want to so see posts above for clarification.

 

I don't think Amazon will spinoff their cloud business and unlikely that any of the other public cloud providers. Growing the cloud business is capex intensive and the public cloud companies can use the cash flows from profitable cash generating businesses to grow the cloud business. IMO, it would be short-term thinking to do such a spinoff for any of these (AMZN, MSFT, GOOG, BABA).

 

Having said that, I don't think applying a simple multiple to Amazon on an overall basis makes sense. There are four different businesses that need to be valued differently.

1. US retail 1P business

2. International retail (money losing given startup mode) business

3. 3P + services business

4. AWS

 

One can then apply some holding company discount, given that it is unlikely to ever be split.

 

I'm buying what you're selling.

 

I am open to criticism. Not sure a comment like this is helpful.

[walkie518]

Amazon is a fabulous business. 

 

AWS supports the retail business, and it wasn't until AWS could make real money that Amazon wanted to segment in the statements. 

 

Now, Amazon video might be the next business to segment as what was expense as cost of goods for the retail business is now getting capitalized as the content gains marketable value.  It likely won't grow at the same pace of AWS, but the content creators will always be relevant.  Sure, Amazon likely won't be Disney, but the awards they've won on such short time is meaningful. 

 

Netflix has a $60B market cap and runs on AWS.  Imagine if Amazon Video was appreciated?  Maybe there's enough room for everyone? 

 

In either case, Amazon video must be worth more than Netflix despite not being the first mover? 

 

Note: no discussion on price of the stock here... sum-of-the-parts is the optimist's view and a multiple on GAAP net income is the pessimist's.

[clutch]

Netflix has a $60B market cap and runs on AWS.  Imagine if Amazon Video was appreciated?  Maybe there's enough room for everyone? 

 

In either case, Amazon video must be worth more than Netflix despite not being the first mover? 

 

This relationship with Netflix is super interesting. Netflix went all in on AWS for their infrastructure. Amazon not only makes profits off that relationship but they could also learn a lot of things about running digital content services on AWS. So now they can apply those lessons in providing their own service!

 

...and what other service could be next?

[Liberty]

Scott Galloway - How Amazon is Dismantling Retail