In Amazon.com's (NASDAQ:AMZN) earnings call earlier last week, two areas really stood out: Amazon Prime and Amazon Web Services.
In this clip, tech analysts Sean O'Reilly and Dylan Lewis go through the impressive growth numbers for both services, how they're affecting Amazon's top line, and just how much scalability they have for the future.
A transcript follows the video.
This podcast was recorded on Jan. 29, 2016.
Sean O'Reilly: Prime memberships, everybody's favorite service, increased 51% in 2015.
Dylan Lewis: Wow.
O'Reilly: That actually includes 47% growth in the U.S., so it's actually slightly better overseas. That's crazy, though!
Lewis: I don't know exactly what the stat is off the top of my head, but I think Prime members spend like threefold what standard members do.
O'Reilly: Yeah. They spend over $1,000 a year on average. AWS, everybody's favorite cloud computing business that stores all my photos of the last two years of my son -- I actually think I just got the count. I have, like, 30GB of photos and videos.
O'Reilly: It's bad.
Lewis: And how old is your son?
O'Reilly: He's 2! Extrapolate this -- I'm going to be to a terabyte by his 10th birthday.
Lewis: And plus, I mean, you get the first out of the way now. There's some interesting stuff there. But he's going to be doing chorus concerts, baseball games ...
O'Reilly: It's going to be bad, bad.
Lewis: There's going to be a lot of video in the next couple years.
O'Reilly: So, thank you, Amazon, for storing my son's life. That accounted for $2.4 billion of the sales, in the fourth quarter, and it finished the year at $7.9 billion of total revenues. So that's, like, 8% of the revenues, because they're just over $100, I think. For the quarter. Anyway. I'm going to skip forward to this chart I have later in the notes.
Lewis: Sean titled this, in our outline, "More on AWS -- That is One Pretty Chart."
O'Reilly: AWS's operating margin, I don't even know what AWS's costs are. It's just a bunch of servers in a room. Stop me?
Lewis: It's a lot of physical infrastructure they had to set up. I mean, the services that power those cost some money.
O'Reilly: And a bunch of programmers, I assume. Anyway, it looks like the gross margin was about 7.5% back in Q2 2014, so flash-forward a year and a half, it is a 45-degree angle straight up; Q4 2015 AWS gross margin was just under 30%. They built out all that infrastructure; they got the customers coming in, and it's just all icing on the cake.
Lewis: I think the thing you have to love about those kinds of margins is, it's such a scalable business.
O'Reilly: It's going to get even better, it's awesome.
Lewis: It's crazy, how easy it is for them to roll it out and increase that customer base.
O'Reilly: I first heard about this, that hedge fund manager, he's retired now, but Stanley Druckenmiller, he was George Soros' general, or chief trigger-puller, or whatever you want to call him, in the '90s. I saw him give an interview on CNBC, and he was talking about how much he loves Jeff Bezos and Amazon. He's like, "Listen, Bezos is a serial monopolist, AWS is killing it, it's so scaleable and everything." And I didn't quite get what he was talking about then, because honestly, this was like two years ago, this was the first time I'd heard of AWS, and then you see it, it's like, "Oh my gosh, they're going to kill everybody!" They're beating Microsoft at all this cloud storage stuff, it's a big deal.
Lewis: Yeah, they tag themselves as the best in the biz.