So what I will do is try to value Amazon as two separate businesses. The whole Amazon ecosystem is so connected that AWS is the only segment you could just spin off as a separate company without any problems in my view. The advertising revenues need the marketplace. I think the problem is that you can't really put a multiple on the advertising sales, then another one on prime subscriptions, and close with "I will just value the remaining retails sales with a P/S of X." Amazon prime subscriptions need the marketplace. I have seen SA articles where fellow authors did a sum-of-the-parts valuation and valued more than two segments. I will come back to this later in this article. An important takeaway from this quote is that the majority of technology infrastructure costs are allocated to the AWS segment. "Amazon retail" is, by my definition, the sum of the North America and the International segment.
The majority of technology infrastructure costs are allocated to the AWS segment based on usage.Īmazon 10-K: Note 10 - Segment Information We allocate to segment results the operating expenses “Fulfillment,” “Technology and content,” “Sales and marketing,” and “General and administrative” based on usage, which is generally reflected in the segment in which the costs are incurred. We have organized our operations into three segments: North America, International, and AWS. Amazon itself describes the segments as followed:
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How to look at AmazonĪmazon consists of two separate companies, AWS and what I will call "Amazon retail" throughout this article. Now that Amazon is off close to 50% from its all-time high, I decided to finally take a deeper look at it and want to share my findings and opinion in this article. The valuations of the past didn't make any sense to me. I felt like it would never really turn any profits because the last-mile fulfillment is just too unprofitable. The rest of Amazon's businesses never appealed to me. I thought that the cloud segment, AWS, was a great business and I would probably take a deeper look if it would ever be spun off. I only saw constant revenue growth with close to no profits, resulting in price-to-earnings ratios in the high double or low triple digits. Amazon is one of those companies I only followed by looking at the earnings releases and reading some articles on SA without ever taking the time to take a deeper look at the operations. This will be my first article on one of the big tech companies, Amazon ( NASDAQ: AMZN).
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