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Amazon.com (AMZN) Web Services Wins Again as Netflix Goes All-in

Amazon.com AWS NASDAQ:AMZN

Amazon.com Amazon Web Services (AWS) is a cash cow for the firm and it continues to grow quickly. The Wall Street Journal reports that Netflix is shutting off the last of its data centers as an endorsement to the quality of service it gets from Amazon’s AWS.

Amazon.com AWS NASDAQ:AMZN

Netflix  is embracing Amazon’s AWS for all of its IT needs. In an email to CIO Journal, Netflix said, “for our streaming business, we have been 100% cloud-based for customer facing systems for some time now, and are planning to completely retire our data centers later this summer”.

Netflix has been moving its platform to AWS since 2008 after it suffered a major hardware failure in its own data center. In 2009, it moved its jobs page to AWS, later on it moved discovery and search, iPhone, accounts page and video player. In 2013, Netflix brought its Big Data platform to Amazon and it moved its billing and payments to AWS in 2014.

Cloud makes sense for Netflix and others

Netflix is one of the few large firms that are turning to an IT strategy that is fully in the cloud. Glenn O’Donnell, vice president and research director at Forrester Research says, “A 100% cloud operation is going to be extremely rare for big established companies.”

However, Netflix provides a sound argument on why moving to the cloud makes sense. The firm says it is fully reliant on AWS because “Cloud environments are ideal for horizontally scaling architectures. We don’t have to guess months ahead what our hardware, storage, and networking needs are going to be. We can programmatically access more of these resources from shared pools within AWS almost instantly”. Amazon is winning the cloud wars and Netflix’s recent move just confirmed AWS’ lead in the cloud space.

Analysts are positive about Amazon’s AWS

There’s no doubt that AWS was the chief reason Amazon was able to record an earnings beat in the second quarter. Revenue from AWS came in at $1.82B to mark a 16.5% sequential growth and a massive 81.5% annual growth. In contrast, Amazon’s total revenue increased by 2.1% quarter-over-quarter and 19.0% year-over-year. AWS also represented massive growth in margins with a 21.4% margin compared to a 5.1% margin in North America.

Analysts are bullish on Amazon and this is to be expected considering the fact that AWS is set to be a $7B+ business. Analysts at Nomura believe that debuting AWS in India in 2016 will be “largest international opportunity” for the firm. They maintained their “Buy” rating on the stock and they raised their price target from $500 to $700.

Analysts at Wedbush maintained their “Outperform” rating on the stock as they raised their price target from $575 to $700. Analysts at Cantor Fitzgerald maintained their “Buy” rating and they raised their price target from $460 to $670. The Cantor analysts opine that AWS will continue to drive EPS beat for “for several years to come.”

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Victor Alagbe is a seasoned business and finance writer with a specialty in writing about how to invest for the long-term in healthcare, pharmacology, energy and tech stocks. His long-term focus is on stocks that provide a nice mix of growth and income. For the short term, he passionately writes about trading stock options for the excitement and leverage that stock options offer.