What Does AWS Mean To Amazon?

In a report published Monday, Cowen and Co analysts maintained a Market Perform rating on

with a price target of $320, saying that considering the breakout of AWS, the big investor question is around Amazon's margin profile. In the report Cowen noted, "The sentiment is that higher AWS losses will be positive as it will reflect higher margins for NA eCommerce. Our current estimate for '15 NA eCommerce CSOI is 4.1% (vs. 1.8% for total AMZN), while our sensitivity analysis suggests a CSOI margin range of 2.6%-5.5%, with the variance being change in AWS operating income." If AWS generates operating income losses of around $1BN, this would translate to NA eCommerce CSOI margins of about 5%. "Net-net, we remain in the camp that AWS is not generating significant operating losses and has healthy EBITDA margins," the analysts said. The 2015 revenue estimate for AWS is at $5.9BN, representing 44% growth y/y. The analysts expect these revenues to rise to $19BN in 2019 on the back of volume growth, offset by pricing decline. The 2015 estimate for opex stands at $6.0BN, indicating a 38% y/y upswing. "For 2015, we estimate COGS of $2.0BN (34% of revenue) driven mainly by server depreciation and other costs; R&D of $886MM, 15% of revenue or almost 2x RAX (8% of revenue); S&M of $1.9BN, 33% of revenue or ~2x RAX (~17% of revenue) and G&A of $709MM, 12% of revenue, below RAX (20-21% of revenue) given our view of more leverage due to higher topline. Netnet, we view our cost assumptions as conservative," the analysts added.