From my blog:

A business once derided as a risky distraction suddenly helped add a stunning $40 billion to’s market value today.

And in a stark sign of how e-commerce has upended the retail business, Amazon is now worth more than Wal-Mart Stores. No doubt Sam Walton is twitching in his grave.

In its second quarter reported today, Amazon said its Amazon Web Services cloud computing business saw revenues jump 81%, to $1.8 billion. But even that wasn’t the biggest surprise for investors, who bid up Amazon’s shares by about 17% in extended trading after a 1.5% decline in today’s regular trading.

Even though cloud services constitute less than 8% of overall sales, which include product sales and other service revenues such as fulfillment for other retailers, AWS earned $391 million in operating profit. That’s well over half the $684 million operating profit from Amazon’s worldwide product sales of $21.4 billion–nearly five times the revenue level of AWS.

In other words, the onetime distraction’s operating margin is north of four times that of Amazon’s original business. At this rate, investors may soon need to rethink what Amazon’s core business actually is.

It’s yet another sign that CEO Jeff Bezos’ risky bet has paid off bigtime. It took many years, but it’s clear that Bezos saw something his critics didn’t. “What we’ve historically seen is that the seeds we plant can take anywhere from three, five, seven years,” he told me way back in late 2006.We think it’s going to be a very meaningful business for us one day.”

That day, it seems, has finally arrived.

Amazon’s ‘Risky’ Web Services ‘Distraction’ Finally Pays Off


From my blog:

When I wrote what was likely the first major magazine story about’s Web services business way back in November 2006, most people thought it was yet another crazy idea from CEO Jeff Bezos.

Heck, even most of my colleagues at the magazine thought I was crazy to bother writing about it. Understandably, many didn’t understand what I was talking about–selling access to Amazon’s huge cloud computing infrastructure for its own operations to outside companies–let alone believe that Amazon Web Services was sufficiently important to merit a cover story. “I have yet to see how these investments are producing any profit,” one analyst griped about the engineering and capital expenses involved. “They’re probably more of a distraction than anything else.”

Today, Amazon revealed just how big that “distraction” is. In its just-reported first-quarter earnings report, Amazon said AWS revenues have hit $5 billion on an annual basis. In the first quarter, revenues rose 49% from a year ago, to $1.57 billion.

Even more surprising, perhaps, it’s making money: $265 million in operating income, up from the $245 million it earned in the first three months of 2014.

That may not be seen as a positive by some investors. In the odd calculus of Wall Street, the more money AWS is losing, the better. That’s because, as Macquarie Securities analyst Ben Schachter wrote in a recent note to clients, it would indicate that Amazon’s main retailing business is more profitable.

Still, Amazon’s shares rose more than 15% in the next morning’s trading. That’s partly because, well, ultimately any profits are good profits.

And the growth of AWS, which now boasts more than 1 million active customers ranging from General Electric to every startup you’ve ever heard of, means it’s now a significant contributor to Amazon’s market value. Schachter values it at $75 billion, nearly half as much as the rest of Amazon’s business at $145 billion. …

Read the rest of the story.