One of Amazon's Fastest-Growing Businesses Has Nothing to Do With Prime Day
While Amazon's (AMZN) - Get Report Prime Day spectacle on Tuesday is likely to help ring up huge sales for the company's merchandise business, it's actually another operation that should really be getting investors excited.
Amazon Web Services (AWS) raked in $2.6 billion in revenue during the first quarter, representing 64% growth from the prior year. The segment's operating income, excluding stock-based compensation, tallied $716 million in the first quarter, up significantly from $265 million during the year-ago quarter. Over the past four quarters, AWS has generated $8.9 billion in revenue for Amazon. On an April call with analysts, Amazon executives said the business is on track to pull in $10 billion in sales this year.
In large part, the growth of AWS is being spurred by Amazon's aggressive investment in expanding cloud-based services for small and large-sized businesses that may lack the funds to invest in expensive tech infrastructure. Amazon said it introduced 214 new features and services during the first quarter, up from 170 new features and services unveiled a year ago. Last year saw 722 new significant features to AWS, said Amazon. The impressive growth in AWS has all sorts of onlookers bullish on its future potential.
"If you were to break AWS out as an independent company now, they would be the largest cloud company and be worth a $100 billion," former Apple (AAPL) - Get Report CEO John Sculley told TheStreet in a May interview.
Sculley, who is an investor in several startup cloud companies such as pharmacy benefit manager RxAdvance, added, "You have to have incredible respect for what Jeff Bezos has done with Amazon Web Services. That business didn't exist six and a half years ago -- you see everyone racing to catch up with Amazon, whether it's Microsoft (MSFT) - Get Report , Alphabet (GOOGL) - Get Report or IBM (IBM) - Get Report -- so huge success story for Amazon here."
Wall Street is pretty keen on AWS as well.
"High AWS profitability gives us increased confidence in the business and also drives a meaningful increase in our sum-of-the-parts analysis," said J.P. Morgan analyst Doug Anmuth in a July 7 note.
Anmuth rates shares of Amazon at overweight, or the equivalent of a buy rating, with a $915 price target.
Anmuth is also bullish on the impact of Prime Day, adding, "We believe Prime Day pulls forward demand during an otherwise quiet retail period and serves as a critical peak-day test for Amazon's fulfillment and distribution operations ahead of the holiday season."
Prime Day generated $400 million in revenue for Amazon last year, according to Anmuth's estimates.
Seems like Amazon is minting money just about everywhere.
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