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 receive it relatively quickly. But with a market cap of $1.6 trillion, it’s actually a conglomerate of multibillion-dollar businesses. That diversification means it doesn’t have to rely on a single revenue stream, even one as large as its public cloud business. But at what point might it be too big?
Last week, the company reported quarterly revenue of almost $140 billion. Let’s start with its cloud business (AWS), which generated top line of $17 billion, up 40% year over year in Q4 2021. That result put AWS on a run rate of over $70 billion, up from the $51 billion pace on which it closed 2020.
Amazon’s public cloud is a business powerhouse, and in many ways it’s the fuel that drives the company’s revenue engine by helping to underwrite other bets its parent company is making.
Part of the reason for AWS’s financial success — and therefore its ability to influence the company’s aggregate results 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 Q4 2021 earnings call.
Put simply: Most of Amazon’s operating income came not from selling stuff, but instead 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 then lowers stress on the hardware and extends the useful life both for the assets that we use to support AWS’s external customers, as well as those used to support our own internal Amazon businesses.”
The external results speak for themselves, with Amazon’s cloud business not just posting huge operating incomes, but also showing growth similar in percentage terms with far-smaller rivals like Microsoft and Alphabet. Internally, things are even more interesting.