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Sunday, March 20, 2016

What An AAPL Loss Means for AWS & Amazon.com, Inc. Stock

Amazon available recent decline illustrates why it is such a risky investment

During the last two days of this week, more than $ 10 billion in market capitalization increased from Amazon.com, Inc. (AMZN). Ironically, the markets reached their highest 2016 these days.

What a waste of AWS AAPL Media & amp; Amazon.com, Inc. The reason for the loss of Amazon shares was a report of the CRN technology site Apple Inc. (AAPL) takes its cloud infrastructure business (LAAS) elsewhere, specifically Alphabet Inc (GOOG , GOOGL).

Amazon Web Services or AWS, played a key role in supporting Apple's iCloud and other cloud-based services for years. Reportedly, AAPL spends about $ 1 billion per year in AWS.
Therefore, if AWS reality loses its relationship with Apple, Amazon shares could fall further? Or, is the loss and AMZN prices?

The Loss Means for AAPL AWS

First, the report suggests that AAPL spends about $ 400 million to $ 600 on Google cloud platform, which means that it remains a customer of AWS. So if this story is true, AMZN AAPL is not lost completely.

Bernstein Research estimates that AWS will grow 57% in 2016, reaching revenues of $ 12.4 billion. If AWS lose this activity, the growth rate is still an impressive 50% to 52%. When you consider these facts, the $ 10 million that Amazon stock has lost the last weekend of value takes into account the loss of Apple - which, incidentally, is only a rumor. We can not forget that the sources of CRN can be wrong.

A Major Problem for Amazon Stock

Although Amazon has probably provided most of their beats with the possible loss of AAPL as a client, the reaction of investors underscores a much larger problem. Such is the reliance on Amazon available on the performance of AWS and how quickly speculation may push lower.

Note, AMZN should create almost $ 130 billion in revenue in 2016. This means that AWS will represent less than 10% of total sales. However, it might well be worth half the $ 250 billion, market capitalization of Amazon, maybe more.

In April last year, I explained that AWS could be worth more than $ 85 million on the open market as an autonomous entity. This came after Amazon reported earnings of AWS, and its performance has released much higher profitability and faster as investors and analysts expected growth.

Since then, revenues and margins AWS rose even faster. Therefore, it is very possible that AWS is worth $ 125 billion to Amazon securities. If we assume that AWS can maintain close to 29% operating margin, a valuation of $ 125 trillion implies a price-FY2016-sale price of 10 and a benefit / FY2016 operating under 35s.

However, with such valuation related and well for the future of AWS AWS Amazon it is speculative, a perfect storm for risk of loss in case of bad press, or the disappointing results is created. The fact is that AWS may have captured more than 70% of new revenue "quota continuous flow" in Q4, according to Bernstein, but the likes of Google, Microsoft Corporation (MSFT) and International Business Machines Corp. (IBM) are all coming on strong.

Yes, AWS has much more capacity and is much bigger than any of its competitors, but as prices become more aggressive and competitors invest to increase capacity, AWS is likely to lose some customers over time.

And because of its valuation, investors should expect more days where billions of market capitalization eradicated in response to rumors, true or not, related to AWS.

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