Amazon's biggest money-maker could be headed towards a 'narrative shift' next year
Amazon's Q1 and subsequent earnings reports revealed that the web services business is both profitable and fast-growing.
Thanks to AWS, the notorious money-loser turned a profit its last two quarters.
In Q3, AWS contributed only 8% of Amazon's revenue, but accounted for 52% of its operating profits because of its improving margins and market share gains.
But in a new note, analysts at Pacific Crest warn investors that 2016 could bring a "narrative shift" for AWS as the company pushes for more aggressive expansion.
In order to have the bandwidth to keep eating up market share, Amazon plans to open up several new cloud facilities, which would cause a spike in spending, according to Pacific Crest.
Here's the crucial part of the note (emphasis ours):
Right now, AWS has cloud capacity in 11 regions, each with multiple data centers, and spanning five countries. On average, each region generated~$715 million of revenue, with that average revenue per region more than doubling in the past two years.
So, while a push for new regions seems to make long-term sense, Amazon's cloud business may not keep up the healthy profits that helped the company's stock price more than double in 2015.
Of course, slimming down margins and eschewing profits to reinvest into future businesses has always been Amazon's oft-stated priority.