Amazon’s cloud computing business is growing fast and will grow from $4.6 billion in revenue in 2014 to $6.6 billion in 2015 and $9.2 billion in 2016, according to estimates by Citi.
But its margins are razor-thin — Citi estimates it lost $123 million in 2014, and will earn only $69 million by 2016.
Amazon Web Services helped kick off the cloud computing revolution, where companies use online services for basic computing infrastructure like data storage and processing power, rather than relying on big banks of computers in their own data centres. AWS is widely considered to be the largest player in the market, ahead of Google, IBM, Microsoft, and others, but Amazon has never revealed exactly how big it is.
Now, Amazon is going to start breaking out AWS results in its Q1’15 earnings report, which is expected to come in late April.
To come up with its estimates, Citi used prior comments from Amazon’s management, published financial information about cloud competitors like Rackspace, and other information from Amazon’s earnings reports. It believes AWS’s margins are lower than competitors because of “aggressive price cuts, heightened investment, and public cloud offering (which typically carries lower margins than private cloud services).”
