Over the last few years, we have published notes about using segment disclosures to enhance understanding. Examples include write-ups about:

Chinese revenues of US firms

AWS taking over the world

And Alibaba and Cloud computing

If you can’t already tell, we love segments at Calcbench. We also love Cloud computing, mostly because it allows firms like Calcbench to build products in a relatively quick and efficient way.

So today, we are going to look at the two biggest Cloud computing firms and try to see what we can learn about their operating margins for each cloud segment.

First, it is important to know that operating segments that are material to a business must be reported in the segment disclosure. You can find these on Calcbench by going to our Interactive Disclosures page and selecting Segment Reporting.

Once there, you can read the disclosure or learn more about how the company tagged the disclosure.  

Why is that helpful?  

One answer is that it will give you clues on how to extract the data. For example, Microsoft’s Intelligent Cloud segment is where the firm houses its Azure line of business. Similarly, Amazon breaks out AWS as a stand-alone segment.*

Mousing over a line item, will give you the Calcbench tool tip which includes an Excel formula and you can start building:

Each component in the formula is a parameter and can be accessed via a cell reference, so it is easy to set up a template. In fact, that is exactly what we did in determining the profitability of AWS versus MSFT Intelligent Cloud.

So without further ado, here is the time series and the data.

.tg {border-collapse:collapse;border-spacing:0;} .tg td{border-color:black;border-style:solid;border-width:1px;font-family:Arial, sans-serif;font-size:14px; overflow:hidden;padding:10px 5px;word-break:normal;} .tg th{border-color:black;border-style:solid;border-width:1px;font-family:Arial, sans-serif;font-size:14px; font-weight:normal;overflow:hidden;padding:10px 5px;word-break:normal;} .tg .tg-cly1{text-align:left;vertical-align:middle}

AMZN AWS MSFT Intelligent Cloud 2017_Q1 24.31% 32.25% 2017_Q2 22.34% 33.49% 2017_Q3 25.55% 30.87% 2017_Q4 26.48% 36.33% 2018_Q1 25.73% 33.61% 2018_Q2 26.90% 40.61% 2018_Q3 31.10% 34.21% 2018_Q4 29.30% 34.96% 2019_Q1 28.89% 33.25% 2019_Q2 25.31% 39.52% 2019_Q3 25.14% 35.86% 2019_Q4 26.08% 38.18% 2020_Q1 30.09% 37.13%

As you see, both of these underlying businesses are more profitable, at an operating level, than the corporates as a whole, so expect more investment into these areas. We will leave it to others to come up with other interpretations!

Please send an email to our team for more information. Thanks!

* Intelligent Cloud and AWS are not exactly the same, as IC also includes other businesses like GitHub and Visual Studio, among other things, but for purposes of this illustration, it will do.