We were trolling through Amazon.com’s latest annual report the other day, and can confirm yet again: Amazon is a highly profitable web-hosting company, with a side business as the world’s largest retailer.
What piqued our interest was Jeff Bezos’ most recent letter to shareholders. There, in the 13th paragraph, Bezos had this line about the company’s web-hosting business, Amazon Web Services: “AWS is now a $30 billion annual run rate business and growing fast.”
We knew AWS was a lucrative operating segment for Amazon ($AMZN) — but $30 billion? That lucrative?
So we visited Amazon’s segment disclosures. And, yes, AWS really is tearing it up right now.
You can see the tale from Figure 1, below. Amazon does generate an enormous portion of total revenue from online retail sales, particularly North America. Eighty-nine percent of the company’s $232.9 billion in revenue last year came from retail. North America sales alone, $141.37 billion, accounted for 60.7 percent.
AWS revenue was only $25.6 billion in 2018 — but growth momentum is clearly with AWS, not retail. AWS revenue more than doubled from 2016 to 2018. In the same period, retail sales grew only 67.4 percent.
AWS’ fourth-quarter 2018 revenue was $7.43 billion. Annualize that out, and it’s $29.7 billion for a full year. Therefore, Bezos is correct. AWS has a $30 billion run rate. Its operating profit has more than doubled in three years. Heck, its operating income is now larger than operating income from retail.
So AWS has a compound annual growth rate of 28.07 percent, compared to a CAGR of only 18.76 percent for Amazon retail. If you carry those rates forward, then AWS will become Amazon’s primary revenue stream in 2046. AWS would have revenue of $26.2 trillion that year, compared to $25.5 trillion for retail. See Figure 2, below.
Sound far-fetched? Before you roll your eyes, consider this. The United Nations estimates that the world population will be 9.8 billion by 2050. Let’s cut that to 9.5 billion by 2046, just to be conservative. That would be $2,688 spent by every man, woman, and child on Amazon retail in 2046.
We don’t know about you, but we’re doing our part to spend that much on Amazon right now.
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