[blinding-streak]

Question: does Amazon's retail business matter for analysts at all? It drives the majority of revenue for the company but a much, much smaller amount of profit. Does Wall Street care about Amazon's core business one iota?

[ecshafer]

The margins on tech/cloud are just so astronomically higher than retail. Places like Walmart or Costco are fighting for <5% profit margins, IIRC its closer to 2%. Quick search says AWS has about a 35% profit margin and about 50-60% of the operating profit of amazon but 17% of the Revenue. With those numbers it makes sense to focus on AWS.

IMO AWS should be spun out as a separate company.

[mbreese]

This makes me wonder if Amazon the retailer requires having access to AWS services “at cost” in order to be profitable. If AWS was spun out completely, would Amazon proper be able to afford their AWS bill of AWS had a profit margin on it.

I’m sure Amazon.com would be fine, but it would take a chunk out of their margins. I’m also sure that their X% ownership of the spun out AWS would cover the difference.

[mekdoonggi]

Consider the reverse. If AWS didn't have a large guaranteed customer in the form of Amazon, would they still be able to develop their products with perfect knowledge of the needs?

[ivan_gammel]

If AWS becomes a separate business now, they may be able to build better products, given a bit less focus on one large customer (Idk if Amazon.com has any priority in their product roadmaps now)

[moralestapia]

I don't have the answer but this question has an answer, as Amazon's earning reports are public.

[softwaredoug]

It doesn’t help that now other potential growth markets for AWS, like the EU, now are getting pushed to have more and more data sovereignty due to the administrations antipathy towards allies. Musk can whine all he wants about the EU, but that’s like complaining about customers that don’t want to buy your products instead of building a good product they trust and want to buy.

[tonyedgecombe]

If they were separate businesses it would make no sense to merge them. It would be like Microsoft buying Walmart.

[qbrass]

Don't give them ideas.

[fmajid]

I'd run the numbers and AWS and Amazon's ad business together accounted for 100% of Amazon's market cap. The e-commerce division is essentially worthless as far as Wall Street is concerned, other than a loss-leader inventory source for the ad business.

[mlyle]

Big revenue + small margins in a stable business, IMO, is a massive liability for the bottom line; any downturn in business and that becomes big revenue + big losses. Even if cloud is making money, it can wipe a lot of that out.

From the point of view of running an enterprise that lasts, though, diversification is important. Financially diversification is probably, in general, bad for EPS. But if you want to run a lasting empire, it's best to not tie it to just a narrow thing.

[bluGill]

That depends on the business. People are not going to stop eating so small margins in the grocery business isn't a negative - the revenue is mostly recurring and recession proof (some people might switch from buying meat to rice+beans, but other people are going to stop eating out and so it balances).

[mlyle]

Just because people need a grocery store doesn't mean that you're guaranteed to make money running one.

multiplying huge revenue by a small percentage to get a big positive number

to multiplying huge revenue by a small negative percentage to get a big negative number

So that's how Kroger managed to lose billions over the last couple of quarters, or how small changes in shoplifting/shrinkage based on store makeup can cause losses to some chains, etc.

[frumper]

https://massmarketretailers.com/kroger-delivers-solid-quarte...

They didn't lose money because of their grocery operations. Those margins have increased slightly.

[mlyle]

They lost money because of their grocery delivery operations.

Their margins have increased slightly if you ignore the part where their efforts at grocery fulfillment blew up.

Just because an industry is essential doesn't mean that every firm in it makes money.

[frumper]

I agree, all kinds of grocery stores have failed over the years. Kroger's just isn't a good example of a failing store for a lot of reasons. They aren't a stellar investment, but they are also up from 1 year ago and 5 years, so investor's don't look like they agree with your summary of the business.

[legitster]

It definitely boosts their overall value as a company. If one share equals a slice of "what the company is worth now" + future growth, steady long-run revenue sets a solid baseline for the stock price.

[ottah]

Growth is all that matters. There is perceived to be much less potential growth in retail than there is in tech. You have to remember, most people literally think of computers in magical terms, and what's possible is usually more anchored by what they see in movies than what they experience in real life. So believing that Sam Altman is going to manage to capture all economic output of labor is seen as a realistic belief. Believing that Amazon will replace all retail in the world is obviously never going to happen.

[softwaredoug]

With tech companies, investors buy future growth, not stable businesses.