AWS financials on deck: The road to 3 million servers in operation

When Amazon releases the financial picture for Amazon Web Services it'll be clear how scale matters for infrastructure as a service.
Written by Larry Dignan, Contributor

Amazon should be opening up the kimono on Amazon Web Services' financials any day now and the data should illustrate how dominate the cloud service has become.

During its fourth quarter earnings call in January, Amazon executives noted that it would break out AWS financials by the release of its first quarter earnings, currently scheduled for April 22.

Once those financials are released, we'll get a good indicator of AWS' prospects, impact on Amazon's overall business picture and potential as a spin-off operation. Indeed, AWS is just coming off its Summit in San Francisco where the company touted partnerships, its ecosystem and new tools.

Cowen analyst John Blackledge has taken an early stab at the AWS financial picture. One of the takeaways from his report, released in March, is that the AWS price cuts and the never-ending war with Google and Microsoft did take a toll on growth estimates. That pricing war means that only cloud providers with real scale can compete.

Most analysts think that AWS, Google and Microsoft are the big three public cloud provider. IBM has a chance to break into the club, but other players such as Hewlett-Packard are aiming to drop the public cloud game and focus on the enterprise. That course is a rationale one.

What does the AWS scale look like on the bottom line?

Blackledge estimates that AWS annual revenue this year will be about $5.9 billion, up 38 percent from a year ago. For 2019, AWS sales should be about $19 billion. Not surprisingly, AWS is playing a volume game.

The bottom line should be interesting. For instance, Blackledge previously expected 2015 sales of $6.6 billion. The price cuts in April 2014 took $700 million off of AWS' top line. In other words, AWS can be hurt by rivals that also have a lot of scale.

As for AWS costs, Blackledge sees cost of good sold of about $2 billion in 2015 and that's sum is mostly driven by server depreciation and infrastructure costs.

By 2020, Blackledge has AWS revenue hitting more than $23 billion.

The margins on AWS should be solid going forward with 66 percent gross margins in 2015 and 77 percent in 2020, according to Blackledge. Compared to Amazon's e-commerce business, AWS looks like a supermodel on the profit margin front.

To understand the scale of AWS it's worth pondering the number of total servers in operation. Blackledge estimates that AWS will have 1.3 million servers by the end of 2015. By the end of 2020, AWS will be pushing 3 million servers. Compute and storage will dominate AWS revenue representing at least two-third of the sales pie for the foreseeable future.


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