Amazon Seen Spinning Off Cloud Computing Unit AWS
February 11, 2013
Grazed from Investors Daily. Author: Reinhardt Krause.
Amazon.com (AMZN) is likely to spin off its cloud computing arm, Amazon Web Services, says Oppenheimer. In a report on the cloud industry released Monday, Oppenheimer analyst Tim Horan says Amazon’s cloud computing unit would be better off as a publicly traded subsidiary. "We believe an ultimate spinoff of AWS is inevitable due to its channel conflicts and the need to gain scale," Horan wrote. " We see the business as extremely valuable on a stand-alone basis, possibly even operating as a REIT (real estate investment trust).
"To date, public cloud users, including online retailers, have had few alternatives when utilizing the cloud, other than to fund one of its biggest competitors. New competition will change the dynamic, and with more credible options from which to choose, an increase in the number of defections and/or a loss or pause in market share will pressure Amazon to create two separate companies that are more horizontally segmented."…
Horan estimates AWS’ 2012 revenue at $2.1 billion, up 77%. He expected revenue of $10 billion in 2016, representing 7% of Amazon’s total revenue. Horan uses Rackspace Hosting (RAX), Amazon’s top rival in the infrastructure-as-a-service (IaaS) market, as a valuation guide. "Rackspace has a much smaller presence in public cloud at about $300 million of revenue in 2012, and $1.3 billion overall," Horan wrote. "If we assign a 6x sales multiple to AWS, consistent with Rackspace, this would imply AWS would be worth $101 billion in 2018 … ."
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