Analyst Predicts Amazon Web Services Spinoff ‘Inevitable’

Could Amazon be looking at spinning off its Amazon Web Services? One analyst points to a number of signs that say yes, it is inevitable. The Investors Business Daily reported on the comments from Oppenheimer analyst Tim Horan that says the 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).”

While AWS and Amazon are one, in the tech business, the AWS operation is largely regarded and referred to as a separate operation – books, movies, and even tablets are truly separate in most thoughts.  Horan references AWS’ biggest competitor in the IaaS space, Rackspace Hosting as a measure to approximate AWS’ value. Based on Rackspace’s numbers of $1.3 billion overall and extending that by 6x to represent the base of AWS, he arrives at a figure of $101 Billion value for AWS in 2018. It appears from the outside that such a spinoff is feasible, but would be a giant move that would require a bunch of new endeavors for the business.  In the meantime Amazon has a base of products so wide, it can be difficult to see what a juggernaut the AWS operation really is and that it dominates the IaaS so.

“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.”

Here’s another thing we do know – Jeff Bezos for all his reputation is well-known as a disrupter with strategic vision and flawless execution. This is all the stuff you want from a head honcho. I don’t believe he’s above cutting loose one of the company’s biggest successes. With the recent history of tech IPO’s gone wrong however, some may say this may not be the right time for this.

On the other hand, there are so many financials going right for AWS, a hefty valuation in an IPO is surely in the cards. According to reports, the giant pulled $2 Billion in sales in 2012 and is projected to pull in $3.8 Billion this year. That’s a lot of cheese no matter how you look at it, numbers like these look like the type of momentum that indeed look to be behind a massive IPO. With Amazon’s strong interest into getting into the enterprise base, they are definitely shooting for more revenue and continued dominance. In the weeks and months to come, it is possible that we will all be talking about AWS, other cloud providers and the public investment in these companies quite regularly.

 

About John Casaretto

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