Making the case for Amazon to release its cloud revenues

Amazon doesn’t have to share its cloud financials - but it should

The past few weeks have been earnings season, meaning publicly-traded companies reveal their latest financial results for the second quarter of the year.

In the cloud computing industry, some companies like Microsoft are flaunting their results. Microsost made just under $1 billion in the quarter from its cloud, and the company now expects to make up to $4.4B off its cloud practice this year.

But other companies aren’t as forthcoming with the financials behind their cloud products. And yes, we’re talking about you Amazon.

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Folks who track the industry almost universally agree that Amazon is the largest cloud provider, not just by compute power but also revenue. But just how big of a lead does Amazon have over Microsoft, IBM, Google and a whole host of other competitors when it comes to revenue?

We don’t know. And until Amazon is more forthcoming with its financials related to its cloud computing division we will not know.

To be fair, Amazon does report its IaaS revenue, but it clouds the issue (pun intended). In it’s quarterly financial reports it files with the U.S. Securities and Exchange Commission (SEC), Amazon lumps its AWS financials in with “other” revenues it collects outside of ecommerce and media. So when AWS says it made $1.2 billion in “other” revenue that includes AWS, but just how much of that is from AWS is unknown. Analysts who track the company routinely push Amazon executives for more information about AWS revenues, but the company doesn’t budge.

Why doesn't Amazon release its AWS financials? Basically, because it doesn't have to. The SEC, which governs how publicly traded companies report their financials, generally requires companies to report specific financial details when a division reaches 10% of a company’s revenue. With Amazon on pace to collect around $90 billion in revenue this year, AWS still isn’t quite big enough for Amazon to have to break out the revenue for its cloud division.

That hasn’t kept analysts from estimating it though. The latest lofty figures put AWS revenues at a $5 billion annual revenue pace. Jefferies and Pacific Crest Securities both came to that conclusion. 

In a recent interview Andy Jassy, SVP of Amazon and chief of the company’s cloud division, was asked if people would be “mislead by those numbers?” “You know I can’t answer that,” responded Jassy, smiling and almost laughing. Why not, Jassy was asked? (Check out the clip here)

“I think in really fast growing, nascent markets - like the cloud is - there’s a lot of competitive intelligence when the leader gives out those types of metrics, so as long as we don’t have to we don’t.”

But they should.

Amazon investors should be kept informed of how one of the most important divisions of the company is doing, especially if it’s contributing significantly to the company’s profits and losses. In the company’s most recent earnings call, CITEWorld reports that Amazon’s CFO acknowledged that AWS price cuts impacted the company’s financial results in a “meaningful way.” If AWS is having a “meaningful” impact on the company’s financials, then it owes it to investors to disclose just how meaningful AWS is to Amazon.  

Amazon’s most recent earnings were less than stellar - revenues were on target at about $19 billion for the quarter, but losses were larger than expected at $126 million. Guidance for the next quarter is that losses could balloon to more than $800 million. Given the state of the financials at the company, Amazon has plenty of reason to divulge some additional details on the financials behind what could be one of the glimmering pieces of profit at the company. 

But perhaps AWS doesn’t want to divulge the financials because it’s not as flattering for the company as some expect. That “other” category where Amazon lumps in its AWS revenue collected $1.2B in the past quarter, which was a 37% growth rate compared to the year before. That sounds good, but it wasn’t quite humming along at the 50% growth rate clip it had in past quarters.

Sooner rather than later Amazon may be forced to divulge its cloud revenues. IBM has gotten slapped on the wrist for not reporting its cloud revenue. Reuters last year revealed that the SEC had opened a probe into lack of information related to financial reporting of IBM’s cloud operations. IBM, despite saying that cloud computing is one of its focal areas of development, defended its practice of not explicitly reporting its cloud revenues at the time.

Personally, I think it’s ridiculous that the government does not require companies like Amazon to report the financials of significant divisions of their companies. Perhaps that 10% threshold rule should change.

In the meantime, Amazon doesn’t have to wait for the SEC to tell it to reveal its revenues, it could do it sooner. Customers, investors and the general public should want to know how Amazon’s cloud division - which has been anointed the market leader for three years in a row now by Gartner - is doing financially. If the company is doing so great, then why not show it off? Microsoft is bragging about its cloud revenues. Is Amazon bigger than Microsoft? If so, show it!

Copyright © 2014 IDG Communications, Inc.

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