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Amazon’s 10-K and Speculation on HQ2
Saturday, February 3, 2018

So there we were, like any other hip financial data geeks, playing the great business parlor game of 2018: Where will Amazon place its second headquarters?

We were arguing over Boston vs. Northern Virginia, when someone here said, “Why does Amazon even want a second headquarters, anyway? Like, that’s the sort of thing you do when you want to break up a company.”

Yeah. We couldn’t un-see the idea once it entered our heads, either.

To be clear, this is speculation on our part. But we did wonder what Amazon’s segment disclosures might suggest about whether Amazon could be broken up. So we dropped by the trusty Calcbench Interactive Disclosure page to research Amazon’s 2017 Form 10-K, which was filed Feb. 1.

There, at the bottom, in the “Segment Information” section, was this nifty table.

As you can see, AWS (Amazon Web Services, the company’s web hosting business) makes a lot of profit for the firm. The profit margin on that segment is 24.8 percent — miles better than the North America online sales segment, with its 2.7 percent margin, or the international online sales segment, which ran a 5.6 percent loss. And AWS has been running a profit margin of 19 to 25 percent for the last three years, while North America has floated around 2 percent and international hasn’t turned a dime of profit.

Hmmm. From a financial engineering perspective, perhaps you could make the argument that Amazon should spin off AWS into its own business, rather than have that all that growth (revenue up 221 percent in three years! profit up 287 percent!) buried under the slow-poke margins of the retail division.

But that doesn’t tell us much about where Amazon might put its HQ2. Does the AWS division have a concentration of real estate anywhere? Is it growing so rapidly that maybe a large headquarters for AWS makes sense?

So we scrolled further down to Amazon’s segment disclosure of Property, Plant & Equipment. We see this:

AWS accounts for roughly 30.5 percent of total PPE at Amazon, and has nearly doubled in three years. Then again, PPE for North America and international divisions has grown even faster, and wherever HQ2 lands, its PPE will probably be reported in that “Corporate” line at the bottom of the chart anyway.

Really, then, PPE numbers don’t give us much insight. Fully half of AWS’ costs for PPE in 2017 were equipment leases anyway (you can see that in the footnotes) rather than permanent land or equipment acquisitions. That leaves us still speculating about HQ2 based on other factors, such as access to skilled labor or secret plans CEO Jeff Bezos might have to build a flying car factory or something.

Regardless, our Interactive Disclosure page (and don’t forget the Segments, Rollforwards, and Breakouts page either) shows yet again that you can dive deeply into a company’s financial data, and find great insights immediately.


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