All smiles for Amazon founder Jeff Bezos
All smiles for Amazon founder Jeff Bezos
Julie Bort

Amazon is notoriously tight-lipped about how much money it really makes on its cloud business, Amazon Web Services.

But it could be sitting on a unit that will generate nearly $4 billion of high-margin revenues this year, writes Macquarie Capital analyst Ben Schachter in a research note issued last week.

He believes that AWS will bring in $3.8 billion in revenue in 2013 and would be valued at a $19 billion company if were a stand-alone company.

And he, says, that's conservative, based on "our 2013 AWS revenue estimate." If he was aggressive enough to use an 8x multiple, AWS would be worth up to $30 billion, he writes.

Plus, AWS's gross margins are really high, he says because "Amazon runs all AWS costs, including employee/ operational and depreciation, through the Technology & Content expense line."

This meant that AWS contributed 190 points of overall gross margin to Amazon in 2011 and it will contribute more than 500 points by 2015, he says.

It all adds up to Amazon why he thinks Amazon's share price will hit $305 in the next 12 months. Amazon closed above $268 on Thursday.

But others wouldn't buy all of his analysis.

Amazon doesn't break out AWS revenue and margins in its financial reports. It lumps in AWS in its “other” revenue category. And another school of thought believes that Amazon sells its cloud services on razor thin margins, points out GigaOM's Barb Darrow.

We're pretty sure that Amazon is making at least a decent return for its effort with AWS, even if it's not the 500+ points of gross margin that Schachter envisions.

However, we're skeptical that enterprises will rush to Amazon more than other clouds available to them, from Google to Rackspace.

That's because, while Amazon is known for its cutting-edge cloud tech and low costs, it doesn't have a great reputation for reliability, a crucial consideration for an enterprise. All clouds go down at some point, but Amazon's outages are highly visible, such as the one that brought down Netflix on Christmas.

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Geopolitics

The Train Wreck That Is Poland Right Now

Everything is collapsing: The zloty is sinking, a virus is spreading, diplomacy has disappeared, and so has the rule of law. And the government claims everything is going just fine.

Police forces on the Poland-Belarus border.

Monika Olejnik

-OpEd-

WARSAW — Everywhere we look, there is a disaster.

The zloty is sinking because of inflation, which we owe to the head of Poland's central bank Adam Glapinski, a political ally of ruling PiS party leader Jaroslaw Kaczynski since the early 1990s when the pair demonstrated against then President Lech Wałęsa and joined in burning his effigy.

At the same time, we also have a COVID-19 catastrophe. As we've witnessed, 25,000 daily cases and hundreds of deaths are not enough for the government to introduce any kind of restrictions. The Prime Minister is afraid of demonstrations that could lead to deaths from COVID-19, while tens of thousands of people recently attended the National Stadium without masks and nobody checked whether anyone was vaccinated.

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Support Worldcrunch
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