Amazon.com Announces Second Quarter Sales Up 20%
ir.aboutamazon.com
ir.aboutamazon.com
1) Close to 70% of Amazon operating income once again can be attributed to AWS.
Consolidated operating income: $3,084 m AWS operating income: $2,121 m
2) AWS revenue was $8.3B for the quarter, 37% more than the same quarter last year.
The interesting number you left out was the non-AWS revenue, which in 2018 (too lazy to correlate with today's announcement) was $230B, literally 30x higher. AWS is a tiny drop in the bucket, no matter what the profit details say.
Which then prompts the question of why AWS gets that kind of margin, when it would seem like a pretty commoditized field at this point. Linux VMs are an open and very portable deployment platform. You can get them from any number of top tier providers and a huge horde of little ones. You'd expect to see a ton of competition driving prices down, but we don't. I genuinely don't know why.
And from an AWS / profit perspective, running the rest of Amazon is essentially what gives them a base consumer to get them to that scale.
It's that aggregate of so many individual clients that makes it difficult. So why aren't all the small clients getting picked off by the hundreds of small competitors?
My take is that the sheer scale of AWS has hit a point where engineers (the ones making infrastructure decisions) and moving from one company to another are just more likely to be familiar with AWS at this point. The same concept makes hiring easier.
My other guess is that lots of engineers are like me and just got sick of their hosting company getting bought out and constantly having to deal with console changes and migrations.
I am with GCP now, one of the reasons I picked GCP is because they are very large and have reasons to continue offering cloud services even if it becomes commoditized and unprofitable. The same is true for AWS.
Also, of course "no one ever got fired for choosing AWS".
AWS is fast food and expensive because consistency, availability, and volume are what count in the cloud business. You can get better quality VMs for less money but you won’t be able to provision thousands easily and it’s not going to be available 24/7.
McDonald's isn't impressive because they can make a Big Mac in 30 seconds. They're impressive because I can get almost the exact same Big Mac anywhere in the world.
You definitely don't want to run your RDBMS on Kubernetes, and while DO's "Marketplace" has a solution, it's not the same.
If you’re targeting AWS you’re probably better off using their solution, but you can totally run your database on k8s. And for some uses it’s even a good idea.
I've been doing this for a while. Before there were statefulsets, it was pretty painful. But now, it's relatively easy. Sure, not as easy as a PaaS database that seems to just work, but much easier than managing a cluster of servers with all sorts of crazy scripts.
Google Cloud has a ton of built-in support and UI for Kubernetes clusters. They make it really nice. It's roughly the same price, so I'm not sure I'd run Kubernetes on any other service.
Nope, wish I had time to devote to such a comparison. Would love to see an article.
* Access control for everything via IAM. This for me is the killer feature for AWS, almost anything from users, to servers, to individual IoT devices can be granted permission to access other AWS resources with extreme granularity.
* Audit logging of every single API call, user invoked or otherwise, via Cloudtrail.
* Monitoring of and responding to key metrics via Cloudwatch. This isn’t just graphs as it can appear on the surface, Cloudwatch alarms allow you to do things like killing individual servers if they start throwing errors while others aren’t.
* Responding to changes in your infrastructure via Cloudtrail. We’re using this for features ranging from emailing our security team when a new IAM user is provisioned, through to full release orchestration.
* All those features supported across services that can fulfil more or less any requirement you have, whether that’s a MySQL database, a message queue, or (should you really need it) a satellite downlink.
DO are fine if what you want really is just a server in a data centre somewhere, but you’re missing out on a lot of really powerful management features with them, without even getting into the other services AWS have.
At that scale the UI of the console really doesn't matter, everything is IAC so developers rarely need to directly access AWS. The one thing we do use is the Cost and Usage explorer which has a reasonable UI
Okay, but those "rare" times when you do need to access the infrastructure, having good UI is pretty helpful.
There is nothing to be discussed here. If you compare do with azure, google and aws and are talking about the interface being most important: you clearly are not the enterprisish client aws/azure/google is aiming for.
That might be unique to you, I've been using google and I've very much enjoyed the experience, why doesn't it work for you?
Ther is also a common believe that they will just drop support for something whenever they feel like it - which in regards to GCP could be unwarranted but well it is what it is. I would pick AWS first, Azure is becoming a close second and GCPa distant third. I think Digital Ocean looks awesome and might be worth a look before GCP.
Also, GCP is having stability issues recently.
Never underestimate the power of good aesthetics and design.
Server multiplexing.
Let's say I increase fleet utilization for 1%. My projected margin increase 1%, not retrospectively though. Plus the projected server hardware price drop. The margin increases naturally. If there were no competitor from Google and MSFT. Amzn would need to be extremely aggressive to not making a log of money.
That's why Google was very confident in winning the Cloud war back in early 2012-2014, and prior to that time frame. Google can operate fleet utilization way higher than industry standard, and clearly is ahead of Amzn then.
But it turns out a business is not that simple as writing code. And obviously, Amzn catches up in fleet efficiency. AFAIK, now Google and Amzn are almost head on head in that department, while Azure is the poor kid lagging behind. But that's not a problem for MSFT. Their strength is in enterprise and conventional developer community building.
Not sure what that says about Amazon in 2019, so.
“Wow, that’s insane, their stock must have popped back over 2k because of this news!”
checks ticker
“Down 2.5% after hours...?”
FB Growth 28% YoY, P/E 26.51, Mkt Cap 573B
GOOG Growth 19% YoY, P/E 25.90, Mkt Cap 788B
MSFT Growth 12%, P/E 27.69, Mkt Cap 1.07T
But for those companies it's also pretty impressive, market beating growth.
Tech stocks usually have higher P/E's than retailers, but for comparison here are the P/E Ratios of the world's largest retailers:
WMT 38.8
COST 34.33
KG 9.24
WBA 10.75
HD 21.73
TGT 15.39Then please lay out your understanding of what justifies AMZN's price in your eyes as you've yet to quote a single figure.
The only reason why WMT's P/E is so high (and their Market Cap doubled in since 2016) is because of their success in their e-commerce business which saw 37% growth YoY.
You've been saying AMZN is a retail business whose financials can't be compared to Tech stocks which is clearly untrue, AMZN's retail business is less than 1/2 the size of Walmart yet they're worth 3x more who would've been worth even more if they didn't give out dividends which AMZN can't dream of doing at their current valuation.
As for producing the numbers on the YoY for the retail companies you listed - I hope somebody else does that. I'm busy.
This is a good idea. Stop the stock game and just pay a set base salary = to comp + stock.
But we can’t do that because that would take all the fun out of seeing part of your potential income fluctuate with the whims and buffoonery of Wall Street.
It does help with M&A, raising capital, employee stock options + bonuses.
It's rare, but sometimes you'll hear company Investors saying that their stock price is too high, like Zoom's CEO [1].
[1] https://www.bloomberg.com/news/articles/2019-04-18/zoom-vide...
But here’s the key - to do that, a stock would have to lose TWO THIRDS of it’s value.
So a really high p/e signals really high growth expectations, and when a company isn’t growing at that expectation, the law of gravity again takes control and it will fall back to earth.
Ignore it at your own peril.
But that is no longer the MO of many public companies now.
The goal appears to just eternally grow the stock price and allow share holders to cash out in the form of appreciated shares which get a preferable capital gains tax treatment.
Occasional earnings are just there to prove to the market that you could make money if you wanted to. Amazon has never paid dividends and probably never will unless their shareholders are able to convince them otherwise.
To take it even further, there are additional tax advantages to capital appreciation for the wealthy that hold Amazon stock. They can even choose not to sell appreciated stock but instead get low interest loans using their stock as collateral.
Buy stock - let it appreciate - increase your line of credit - live off the borrowed money that has a lower interest rate than the stock price growth rate - continue until death - let estate sell the stock and take a one time tax hit.
[1] Either through dividends or through buybacks. The second option has some advantages relative to dividends and results in capital gains for the investors that choose to sell.
Second, a company’s market capitalization can only grow in one of two ways: increase in the P/E ratio, or increase in earnings. Of the two, the latter is more sustainable, and less susceptible to market downturns.
Dividends are just the percentage of earnings a company pays out to its shareholders for various reasons (I’ll skip the myriad of reasons for brevity).
The best measure of sustainable value creation is ROIC (Return On Invested Capital). Most people don’t use it because it’s not a readily available statistic and it’s not easy to calculate. But for the long term, I don’t know of anything better. Still, p/e is important.
No, that's not correct. If you are being paid a dividend, whether it be qualified or not, that money is double taxed. Once at the corporate earnings rate and then again to you personally at capital gains rate.
As a shareholder, whether that tax all comes out of your pocket or not, doesn't matter. Your increase in value is effectively taxed at 60-70%.
But that is not the case if the company you invest in, rather than retaining earnings to pay dividends, reinvests into growth or other capital expenditures or keeps large sums of untaxed money in overseas accounts. Thus continually pushing the stock upwards. And allowing investors to make their own choices about cashing out. Be it by selling shares of getting loans using the stock as collateral.
Why in the world do you think Apple has $250B in cash, a full quarter of their total market cap, mostly stashed away in tax free zones?
It is for the simple reason that people can invest and get that money reinvested for them all without ever having to sell or take a distribution and then get taxed before using it or reinvesting it yourself.
My statement is correct.
But you are iggiring the bigger picture that dividends money had to be taxed on the corporate side before it was given to you.
Capital gains that are propped up by huge cash stores in overseas tax free accounts are not.
I would argue that portion of their retail revenue is much closer to tech than retail, considering the margins are comparable to tech companies.
If your company is expected to do well, that performance is already built into your stock price. Doing exactly as well as expected, even if you've doubled your profits, won't cause your share prices to change at all. Because everyone already expected you to do that, so they were willing to pay more money to own your stock even before the official news.
The only thing that changes the stock market drastically is a surprise.
Now I offer you a coin flip with less uncertainty. It earns you $0.6 on head and loses you $0.5 on tail. Would you pay more then $0.05 for it? No. Uncertainty was reduced, but no value was created.
I guess you wouldn't pay $499K for a $1M/$0 flip
We are discussing if the share price of a company that publishes numbers in line with expectations should go up.
If by expectations we mean the numbers published by sell-side analysts they may or may not be close to the actual market expectations.
A second game also costs $10k to enter, but the (50/50) payouts are $9k and $13k.
Do you find then equally attractive? Most people wouldn’t.
If you do, what if you could instead “play” a game where you pay $10,000 and get $10,999 straight away? It’s a worse proposition if you’re risk-neutral, isn’t it?
The company’s second-quarter profit rose 3.6% from a year ago to $2.63 billion after more than doubling last quarter. It missed analysts’ consensus estimate. Amazon had posted its best-ever profit the previous four quarters."
https://www.wsj.com/articles/amazons-streak-of-record-profit...
Here it means that the large increase is not new information, probably that it does not match predictions/expectations is.
> For a company with sales of $233bn last year, Amazon makes surprisingly little profit. That's because the bulk of sales come from the retail business, which generates a comparatively modest profit margin. In fact outside the US, Amazon's retail business loses money.
Plus, AWS growth dropped to 37% from 49%, year over year. I consider that a great number given their size is approaching that of Oracle. However, every headline likes to hang on the persistent decline in AWS growth. It's a very large part of what's propping up the enormous AMZN valuation. As goes AWS, so goes the AMZN stock.
If you have $1bn in assets, and you sell to my company for $2bn, $1bn is recorded as the assets bought and the other $1bn has to be recorded somewhere - and that somewhere is 'goodwill.'
Later, if the acquisition turns out to have been a bad idea, and what I bought from you was worth only $1.2bn, I will record an $800mm 'goodwill impairment' that would be a loss on my income statement and 80% of that goodwill would no longer be recorded as an asset.
Note: Alibaba's operating margins are approx. 30%.
eBay for example did $94b in gross merchandise volume in 2018, their revenue was $10.7b.
Alibaba has almost no self held sales. While Amzn only include profit from 3rd party as revenue, not sales from 3rd party (AFAIK).
I see that one day sale thing appear in many mentions of Amazon and it might be a little...misleading.
Hypothetical: One business is making $100million in revenue, is losing $20million a year but has enough market cap to grow 10-100x and is spending most of its money on R&D/marketing, while a second business makes $1million in profit on $10million in revenue, but you've maxed out your growth and there's no more market cap, I'd rather be business 1, as you're on the road to potentially make hundreds of millions in profit later on.
i.e. I'd rather be Amazon some years back when they weren't profitable than some mom and pop online business that makes enough to pay the mortgage.
Even now, looking at the results, Amazon retail is not a great profitable business. It’s still low margin. No one could have predicted AWS - the true success story.
And look no further than YC backed companies. Have any of them become profitable? Even the one company that has gone public - Dropbox - isn’t looking to good these days.
Further more, even if amazon retail still isn't profitable (I haven't checked the numbers) AWS still wouldn't have spawned without it. Think of it as a pivot, even though they still kept amazon retail.
I'm not really sure what your YC comment has to do with things.
Think of it this way. What do rich people do with their excess money? They invest it. So if you're a company like Mongo/elastic, what do you do with your excess money? Well, invest it back into the business. Both of these companies have years of runway before they go broke or have to go profitable, so it doesn't make sense for them to try and be profitable when there is still so much of the market left in the open.
It is very annoying because the discounts are usually 1-2% (again as a westerner, may well be different for Asia) and it means you might have to wait a week or two for the product to ship.
I have asked stores if they can bill me full price and ship immediately and they say no.
So its really a marketing con to consolidate one or two weeks worth of sales into one day and then proclaim they had such a huge salsa day.
Imagine if Amazon billed two weeks of sales right on Black Friday. The numbers would be insane.
But fundamentally sales going up has nothing to do with counterfeit goods.