Amazon's (
AMZN
) EBITDA margin from its web services, including cloud computing
and cloud storage service offerings, has declined from an estimated
6% in 2005 to just over 4% in 2010. We expect a further decline in
the coming years due to increasing competition from more
established players like Google (
GOOG
), Microsoft (
MSFT
) and Salesforce.com (
CRM
) in cloud-based offerings. Amazon has also accelerated its
international expansion, which will translate into greater
marketing expenses and cause a drag on profit margins.
While we estimate Amazon's cloud computing EBITDA margin will
drop below 4% by the end of our forecast period, the Trefis
community expects this metric to trend in the opposite direction,
predicting an increase towards 5% by the end of our forecast
period.
Our price estimate for Amazon stock stands at
$182
, roughly in line with the current market price.
Growing Competition from Cloud-Computing Majors
The cloud computing market is expected to grow at a faster pace
in the coming years, with major players like Google, Microsoft and
Salesforce.com getting geared up with increased cloud-based
offerings. This means added competition for Amazon in the years
ahead from players that already have a stronger presence in the
market. Higher competition could force Amazon to reduce the license
pricing of the technology infrastructure that it provides to
developers.
Expansion into International Markets
Over the last few years, the percent of Amazon's revenues coming
from international markets has increased from 45% in 2007 to 48% in
2009. As Amazon expands into international markets in the future,
there will be an increase in marketing expenses as the company
positions itself to capture share in new markets. Since emerging
markets are price sensitive in nature, Amazon will have to offer
cost-effective solutions to attract customers. This could further
reduce its margins in the future.
Cloud & Other Web Services Represent Only 3 Percent
of Amazon's Stock Value
We estimate that Amazon's cloud and other web services
operations account for only 3% of the company's stock value. The
Trefis community forecasts that this segment's operating margin
will increase beyond 5% by the end of our forecast period, vs. our
expectation for a gradual decline. While this divergence is
notable, the numerical impact to
our $182 price estimate
is limited since this segment only represents an estimated 3% of
Amazon's stock value.
To see the impact of various web service operating profit
margin scenarios on Amazon's stock value, drag the trend line in
the modifiable chart above.
Register to win a free iPad. Visit our home page
at
trefis.com
for details.
Our
complete analysis for Amazon's stock is here
.