Amazon's Margins

Barry Ritholtz points me to Ben Thompson's post The AWS IPO, in which he examines Amazon's most recent financials. They're the first in which Amazon has broken out AWS as a separate line of business, so they are the first to reveal the margins Amazon is achieving on their cloud business. The answer is:

AWS is very profitable: $265 million in profit on $1.57 billion in sales last quarter alone, for an impressive (for Amazon!) 17% net margin.

The post starts by supposing that Amazon spun out AWS via an IPO:

One of the technology industry’s biggest and most important IPOs occurred late last month, with a valuation of $25.6 billion dollars. That’s more than Google, which IPO’d at a valuation of $24.6 billion, and certainly a lot more than Amazon, which finished its first day on the public markets with a valuation of $438 million.

It concludes:

The profitability of AWS is a big deal in-and-of itself, particularly given the sentiment that cloud computing will ultimately be a commodity won by the companies with the deepest pockets. It turns out that all the reasons to believe in AWS were spot on: Amazon is clearly reaping the benefits of scale from being the largest player, and their determination to have both the most complete and cheapest offering echoes their prior strategies in e-commerce.

Thompson's post is a must-read; I've only given a small taste of it. But it clearly demonstrates that even AWS overall is very profitable, let alone the profitability of S3, its storage service, which I've been blogging about for more than three years.