Amazon’s Battle to Remain the King of Cloud Computing

The cloud continues to drive the company's growth

Amazon - Amazon’s Battle to Remain the King of Cloud Computing

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Last week, Amazon (AMZN) announced an agreement to acquire online pharmacy Pillpack, sending drug store stocks sinking. But forget the headlines and instead remember this: these days, Amazon is a cloud computing play.

Amazon Web Services has more than doubled its revenue since 2015, with sales expanding from $7.8 million in 2015 to $17.5 million last year, according to the company’s most recent annual report. That might only make AWS 10% of its sales last year, but it’s the segment with the biggest growth, thanks to an expanding number of customers. AWS has posted 70%, 55%, and 43% year-over-year growth in the most recent 12-month periods.

Perhaps the craziest statistic, thought, is that AWS boasted an operating income of $4.3 million in 2017 compared to just $2.8 million for the company’s North American business and a $3 million loss for its international business.

Amazon Is the World’s Biggest Player…For Now

In fact, Amazon is currently the biggest cloud player in the world. But it’s not without competition. In the risk section of its annual report, Amazon notes: “Some of our current and potential competitors have greater resources, longer histories, more customers, and/or greater brand recognition, particularly with our newly-launched products.”

For proof of just how competitive the cloud industry is, consider this: Amazon has been in talks with the Pentagon for a huge cloud computing contract. Meanwhile, according to Data Center Knowledge, nine other companies have “coordinated their opposition” to the contract going to just one company (read: Amazon). Tech heavyweights like IBM (IBM), Microsoft (MSFT), and Oracle (ORCL) are among those trying to fend off the possibility that the government could work solely with Amazon.

It’s not just legacy companies that could be trouble for Amazon. Startups continue to pop up to fill in gaps, too. “If you’re Amazon, you’re facing more competition than ever before,” Michel Feaster, founder and CEO of cloud startup Usermind, said, according to Pitchbook. Feaster also predicted that Microsoft would “win” the cloud race.

The good news is that the cloud industry as a whole is growing, with a compound annual growth rate of 19% expected through 2020. Additionally, a report from Wikibon predicted that AWS specifically will reach $43 billion in revenue in 2022 — over 8% of all cloud spending. That’s more than double its current revenue level.

The Bottom Line for Amazon

For the Pentagon contract specifcially, the good news is that Amazon has a has a good resume for government work, which could help its case. In 2013, Amazon won a $600 million contract with the CIA, which a top official recently called “transformational,” Bloomberg reported.

As a company, Amazon is expected to post 27% growth over the next five years, with sales growth not far off from those levels. Amazon’s retail business is massive and will continue to make headlines. But remember that most of its growth is coming from the cloud.

As of this writing, Robert Martin was long Amazon.

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