<story><title>AWS’s Share of Amazon’s Profit</title><url>https://www.tbray.org/ongoing/When/202x/2020/06/14/Amazon-profit-from-AWS</url></story><parent_chain></parent_chain><comment><author>rexreed</author><text>He&amp;#x27;s overly simplifying the contribution to profit by not understanding the contribution to expenses. It&amp;#x27;s not his fault because Amazon doesn&amp;#x27;t break it out that way. They don&amp;#x27;t allocate certain expenses to AWS and other expenses to other branches.&lt;p&gt;While there&amp;#x27;s no doubt that AWS is very profitable, to say it contributes a certain percentage to overall profits probably misses the mark tremendously.&lt;p&gt;It&amp;#x27;s probably and most likely very difficult to extricate costs of server farms that support the retail operation from server farms that host client services from overall operating costs. You&amp;#x27;d need far more detail on gross margins and tight definitions for contribution of revenue. For example, do people who order things on Alexa get revenue counted for non-AWS while the Alexa infrastructure is counted as AWS expense? These are not easy questions. This is why it&amp;#x27;s not broken out as you&amp;#x27;d like.&lt;p&gt;I&amp;#x27;d wager that the contribution to profits is not as suggested here, but it&amp;#x27;s hard to know just how far off the calculation is. And it might not matter.</text></comment>
<story><title>AWS’s Share of Amazon’s Profit</title><url>https://www.tbray.org/ongoing/When/202x/2020/06/14/Amazon-profit-from-AWS</url></story><parent_chain></parent_chain><comment><author>mbesto</author><text>Profit can be a really weird number, especially when it comes to data centers. So looking at pure earning statements numbers is likely going to be misleading no matter how you try to look at (unless you actually look at bank statements, you can create as many interpretations as you want).&lt;p&gt;First, data centers require A LOT of upfront capital. This capital is then capitalized over years, which is how it ultimately affects &amp;quot;profit&amp;quot;. So depending on the capitalization schedule, how much they are investing in future growth, etc. will all affect this number. It&amp;#x27;s why, in short, Bezo&amp;#x27;s doesn&amp;#x27;t ever look at these numbers, but instead free cash flow (FCF).&lt;p&gt;“Percentage margins are not one of the things we are seeking to optimize. It’s the absolute dollar free cash flow per share that you want to maximize, and if you can do that by lowering margins, we would do that.  So if you could take the free cash flow, that’s something that investors can spend. Investors can’t spend percentage margins.”[0]&lt;p&gt;So, the real metric to look at is the FCF&amp;#x2F;DCF generated by AWS. If we had that number, I think you could basically conclude that it&amp;#x27;s &amp;quot;printing money&amp;quot;.&lt;p&gt;[0] - &lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;25iq.com&amp;#x2F;2014&amp;#x2F;04&amp;#x2F;26&amp;#x2F;a-dozen-things-i-have-learned-from-jeff-bezos&amp;#x2F;&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;25iq.com&amp;#x2F;2014&amp;#x2F;04&amp;#x2F;26&amp;#x2F;a-dozen-things-i-have-learned-fr...&lt;/a&gt;</text></comment>