Can someone with better knowledge of finance than me explain the significance of this sentence?
> A.W.S. was 10 percent of Amazon’s revenue, but more than 100 percent of the company’s operating income.
> A.W.S. was 10 percent of Amazon’s revenue, but more than 100 percent of the company’s operating income.
In the same article, we're told:
The operating income for A.W.S. more than tripled in the quarter to $604 million.
Therefore, the conglomerate made $513M, and separately, a subsidiary company, AWS made $604M. This means that other parts of the conglomerate lost a total of $91M
Here's the 5 year old version.
If your family harvests 10 bananas, and you harvest 6 of them, and your family gives away 5 of them, you contributed more than your family kept.
[1] http://www.nytimes.com/2016/04/29/technology/amazon-q1-earni...
So, in effect what they're saying is that AWS is so profitable that it has been subsidizing loss-centers in Amazon's business.
Edit: I should add that Amazon has a history of not turning a very large profit (if at all), and instead choosing to re-invest income on growth and R&D. So the behavior itself is not all that newsworthy, it more just speaks to the importance of AWS.
There is a limit though. There's only so much compute and storage required at current prices.
They are picking up enterprise customers left and right. The strategy there is easy.. just go up the stack and peddle solutions built on AWS. Oracle makes billions selling crap the customer never install, much less use.
The grocery business is a huge push that will require much broader capital investments over a huge geographic footprint. They will be back to losing money soon enough.
http://www.investopedia.com/ask/answers/122714/what-differen...
Whilst I don't understand how something can be 'more than 100%' of operating income, I do understand the gap between revenue and operating income being described can exist if other parts of the business are operated as loss leaders (i.e. they don't make profit on everything they sell).