Please ensure Javascript is enabled for purposes of website accessibility

Billionaire Jeff Bezos' Next $10 Billion Business

By Jamal Carnette, CFA - Apr 16, 2016 at 6:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Bezos tells Amazon shareholders that AWS is growing even faster than Amazon's ubiquitous retail business did.

Source: Amazon

Amazon.com (AMZN 0.25%) CEO Jeff Bezos is a busy man. When he's not running one of the largest e-commerce sites in the world, the CEO is busy with his privately owned aerospace company, Blue Origin, or keeping up with the news via The Washington Post, the newspaper he owns. Bezos currently occupies the No. 5 spot on the Forbes Billionaires List, with an estimated net worth of $45 billion.

So when Amazon's busy chief takes time to correspond with shareholders, it makes sense to pay attention. Recently, Bezos released Amazon's annual shareholder letter. Perhaps the biggest takeaway, highlighting Amazon's future profit driver, was hidden in plain sight, with Bezos discussing it in the first paragraph.

Bezos next $10 billion business
After noting Amazon reached $100 billion in annual sales faster than any other company, Bezos noted Amazon Web Services, or AWS, "is reaching $10 billion in annual sales." Additionally, Bezos noted decade-old AWS achieved that goal faster than the company's core retailing business. "AWS is bigger than Amazon.com was at 10 years old, growing at a faster rate, and -- most noteworthy in my view -- the pace of innovation continues to accelerate ..." Bezos wrote.

Amazon Web Services has been an important part of the company's growth story over the last three years. The service has grown from $3.1 billion in 2013 to $7.9 billion last year, growing 57% on an annualized basis. Overall, Amazon grew its top line at a 20% clip during that period.

At 7.4% AWS is still not a large portion of Amazon.com's total revenue mix, but it's growing. In 2013 the service was only responsible for 4.2% of the company's top line. However, the service definitely punches above its weight where it counts: earnings. In 2015 the company reported 23.6% operating margin in AWS, far above the 4.3% and -0.25% Amazon's North American and International retailing divisions produced. 

Consolidation may help AWS
After years of solid growth with many firms entering the industry, it seems cloud computing is undergoing a period of consolidation. Research firm Forrester predicts that to continue in 2016 as major players, Amazon, IBM (IBM -0.91%), and Microsoft will buy or drive smaller players out of the business. Amazon's been able to grow revenue rapidly, and Bezos' comments appears to indicate the company expects strong revenue growth going forward.

IBM's been very acquisitive in this market by buying private-cloud-as-a-service company Blue Box and cloud-broker Gravitant last year. The company's most notable cloud and big-data-focused purchase was the $2 billion purchase of SoftLayer in 2013. IBM has continued to struggle as CEO Ginni Rometty attempts to transition the business from enterprise IT and servers to cloud. Unfortunately, IBM faces an internal battle where the success of cloud portends the slow death of the larger enterprise business.

Amazon, on the other hand, does not have that problem with retailing essentially unrelated to cloud computing. Amazon should fare well in high-margin cloud computing going forward. AWS was important enough for Bezos to mention the service in the second sentence of his shareholder letter. Investors would be wise to continue to watch its progress closely.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$2,151.82 (0.25%) $5.44
International Business Machines Corporation Stock Quote
International Business Machines Corporation
IBM
$128.48 (-0.91%) $-1.18
Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$252.56 (-0.23%) $0.58

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
330%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/21/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.