Amazon (AMZN) has diversified into several segments, as seen by the development of in-house ARM- (ARMH) based chips with its Annapurna Labs merger. Amazon is monetizing its cloud unit, which has shown continuous growth in recent years.
Revenues for Amazon Web Services (or AWS) saw an increase of 70% YoY (year-over-year) to $5.5 billion for the first nine months of 2015. AWS’s operating margin stood at 21.5% over the same period. For retail businesses, operating margins came in at 2.4%.
According to Wall Street estimates, Amazon’s cloud computing unit will broaden Amazon’s overall earnings and will be a major part of its earnings in the near future. Analysts predict that AWS could reach around $12 billion in profits by the end of 2016 as companies become more dependent on the cloud and reduce their upfront spending on IT (information technology) infrastructure.
Amazon’s future earnings
In 2015, Amazon’s operating margin showed a decline of 8%, as it reduced its price for cloud delivery. Microsoft (MSFT) and Google (GOOG) have eaten away some part of Amazon’s share, as they’ve come up with their own cloud delivery models and built their own data centers worldwide.
Amazon’s growing stock price indicates that investors are more focused on revenues than the bottom line. Investors seem to expect Amazon to show continuous growth in the future, as its revenues from the e-commerce segment surpass other US retail giants. According to the Wall Street Journal, Amazon’s “shares trade at about 155 times forward earnings and about 45 times projected free cash flow.” This keeps Amazon way ahead of its peers, including Microsoft and Google.