when we think about Amazon, it’s usually about some aspect of its vast retail and logistics operation that allows customers to order just about anything and get it relatively quickly. But with a market cap of $1.6 trillion, it’s actually a multibillion-dollar business conglomerate. This diversification means it doesn’t have to rely on a single revenue stream, even if it’s as large as its public cloud business. But at what point can it be too big?
Last week, the company announced quarterly revenue of nearly $140 billion. Let’s start with its cloud business (AWS), which generated revenue of $17 billion, up 40% year-over-year in Q4 2021. This result put AWS at an execution rate of over $70 billion, above the US$ 51 billion pace at which 2020 ended.
Amazon’s public cloud is a business powerhouse and, in many ways, is the fuel that drives the company’s revenue engine, helping to underwrite other bets its parent is making.
Part of the reason AWS is financially successful – and therefore its ability to influence the company’s bottom line so positively – is its ability to run its data centers extremely efficiently, which extends server life and reduces overall costs, Amazon CFO Brian Olsavsky explained to analysts in the fourth quarter 2021 earnings call.
Simply put: most of Amazon’s operating income didn’t come from selling things, but from selling compute and storage.
“We’ve been operating at scale for over 15 years, but we continue to refine our software to run more efficiently on the hardware,” he said. “This reduces stress on the hardware and extends the life of the assets we use to support external AWS customers as well as those used to support our own internal Amazon business.”
The external results speak for themselves, with Amazon’s cloud business not only posting massive operating revenues, but also showing similar growth in percentage terms with much smaller rivals such as Microsoft and Alphabet. Internally, things are even more interesting.