Amazon is notoriously tight-lipped about how much money it really makes on its cloud business, Amazon Web Services.
But it could be sitting on a unit that will generate nearly $4 billion of high-margin revenues this year, writes Macquarie Capital analyst Ben Schachter in a research note issued last week.
He believes that AWS will bring in $3.8 billion in revenue in 2013 and would be valued at a $19 billion company if were a stand-alone company.
And he, says, that's conservative, based on "our 2013 AWS revenue estimate." If he was aggressive enough to use an 8x multiple, AWS would be worth up to $30 billion, he writes.
Plus, AWS's gross margins are really high, he says because "Amazon runs all AWS costs, including employee/ operational and depreciation, through the Technology & Content expense line."
This meant that AWS contributed 190 points of overall gross margin to Amazon in 2011 and it will contribute more than 500 points by 2015, he says.
It all adds up to Amazon why he thinks Amazon's share price will hit $305 in the next 12 months. Amazon closed above $268 on Thursday.
But others wouldn't buy all of his analysis.
Amazon doesn't break out AWS revenue and margins in its financial reports. It lumps in AWS in its “other” revenue category. And another school of thought believes that Amazon sells its cloud services on razor thin margins, points out GigaOM's Barb Darrow.
We're pretty sure that Amazon is making at least a decent return for its effort with AWS, even if it's not the 500+ points of gross margin that Schachter envisions.
However, we're skeptical that enterprises will rush to Amazon more than other clouds available to them, from Google to Rackspace.
That's because, while Amazon is known for its cutting-edge cloud tech and low costs, it doesn't have a great reputation for reliability, a crucial consideration for an enterprise. All clouds go down at some point, but Amazon's outages are highly visible, such as the one that brought down Netflix on Christmas.