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Diving Deep Into Amazon's AWS Pricing Model

Diving Deep Into Amazon's AWS Pricing Model

In a new report, Citi Research analyst Mark May took a close look at shareholder concerns regarding, Inc. (NASDAQ: AMZN)’s AWS pricing. AWS currently accounts for 40 percent of Amazon’s operating income and is projected to make up 65 percent of the company’s income growth this year.

“Annualized per annum price ‘adjustments’ (or reductions) in the 20-25 percent range are to be expected and are in fact healthy for industry growth, though [sic] pricing changed have and will likely remain lumpy and the timing hard to predict,” May explained.

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He also pointed out that pricing alone doesn’t seem to be driving market share in cloud storage, because Alphabet Inc (NASDAQ: GOOGL) (NASDAQ: GOOG)’s services have consistently been priced below those of Amazon and Microsoft Corporation (NASDAQ: MSFT) without significantly impacting market share.

For now, Citi expects annual AWS price cuts of about 25 percent for the foreseeable future.

The firm maintains a Buy rating and a $780 price target for Amazon.

Disclosure: The author holds no position in the stocks mentioned.

Image Credit: "Amazon Box (Picture 1)" by Matthew Paul Argall - Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons.

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