AWS: Long-Run and Normalised FCF Margin Estimates

In Practise Analysis

Last week we interviewed a Former Finance Manager at Amazon, who was partly responsible for collating country and retail product category financials into one consolidated P&L for Brian Olsavsky, AMZN’s CFO. Our aim was to deconstruct Amazon’s Retail P&L from the consolidated accounts to better understand its e-commerce unit economics. Members can read the full analysis and how we estimate the gross, contribution, and long-run EBIT margins of AMZN retail here. This analysis aims to explore AWS’ potential long run and current normalised FCF margin.Each quarter, AMZN reports only three core KPI’s for AWS: backlog, revenue, operating income. For a business generating over $80bn in revenue, it’s incredible how AMZN gets away with such poor disclosure. We have no details on revenue segments, opex lines, or working capital movements for the core asset arguably driving most of AMZN’s enterprise value today. Using last week’s estimates of AMZN Retail’s opex lines, we decouple AWS’ operating expenses: AWS’ tech and content line includes infrastructure costs, and all D&A and SBC associated with the line item. Given the rapid growth in data center square footage and a temporarily elevated D&A expense as a percentage of revenue, a 64% gross margin for AWS seems conservative.
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