Jeff Bezos’ greatest business trick is his ability to spin the illusion that AMZN is a money-making machine. In fact, AMZN is remarkable sales-generating machine,but it costs the Company more than a dollar to generate a dollar of sales.
All of a sudden in 2015 AMZN had become a cloud computing services phenomenon. The last two earnings report showed a rate of growth in its AWS business and the stock rocketed higher. Of course no one seemed to care that outright the AWS business represents less than 10% of AMZN’s total revenues. And of course nothing is ever mentioned about the quality of AMZN’s AWS-derived sales.
The truth is, and Bezos never discusses this, that the majority of AMZN’s AWS contract revenue comes from Silicon Valley unicorns. Most, and maybe all, of them will not be around in a few years. Here’s an accounting of this from someone besides me:
I would like to introduce a meme before the sell side or buy side catches on. As you know AMZN was up 100% this year as Bezos revealed the AWS business to the world. The meme is this: AWS growth is unsustainable. Not only is it unsustainable I predict that the sell side forward revenue growth rate for AWS will go to zero or negative by Christmas next year. It has come to my attention that 50% of AWS growth comes from start ups and my guess is that the majority of those dollars are Unicorns. AMZN has been an indirect beneficiary of QE largess. The Fed’s easy money created a bubble in VC funded start ups. That funding peaked this year and is now in decline as the Unicorn bubble is bursting. I expect this bubble to unravel fast as we are in the part of the cycle where the capital markets shut down for companies burning cash. – AMZN: The Ghost Of XMAS Yet To Come
My AMAZON dot CON report goes into further detail about the problems with Amazon’s AWS business model and why, at some point, the market value being assigned to the part of AMZN’s business model will likely largely evaporate this year.