- By Sangara Narayanan
When it comes to Infrastructure as a Service (IaaS), there is only one company that everybody is talking about - including Oracle (ORCL) co-founder Larry Ellison. The reason is simple: Amazon (AMZN) remains the company to beat when it comes IaaS despite Azure, Microsoft's (MSFT) IaaS offering, growing at triple-digit rates for the last several quarters.
The intrinsic value of ORCL
Amazon is all about IaaS and still growing fast. The company does not have a major stake in the SaaS (Software as a Service) segment the way Microsoft, Oracle and IBM (IBM) do. For the most part, Amazon is still very much a pure-play infrastructure provider. That is how it started; that is how it continues to operate.
This allows the company to keep its focus on one simple thing: how to make infrastructure management better, easier and more attractive for customers. Offering stark contrast is Microsoft, whose Azure and Office 365 are only a part of its larger vision; or Oracle, which wants to be the first company to hit $10 billion from multiple SaaS products while still attempting to take on Amazon in the IaaS space; or even IBM, which has now split its focus between hybrid cloud infrastructure and analytics offered primarily as a cloud service.
On the other hand, Amazon - or, rather, the independently operating Amazon Web Services (AWS) - does not have to worry about anything else other than building its IaaS offering. This allows the company to focus deeply and relentlessly on adding service after service each year. The annual AWS re:Invent conference has become the official launchpad of its multitude of services, and it's clear that the unit is not taking its focus off IaaS for a minute. AWS CEO Andy Jassy told Seattle Times at one point that the division is building thousands of services on an ongoing basis.
"There is so much that we're doing simultaneously. We're going to launch 1,000 significant services or features this year." - Andy Jassy
That single-minded focus on adding more layers to their IaaS offering has immensely helped AWS, which is growing its revenues at high double-digit rates despite cutting prices as often as it can. AWS has cut its S3 (its cloud storage service) pricing from 15 cents per GB down to 2.6 cents per GB between 2008 and 2016 and reduced its EC2 compute instance pricing no less than 53 times since launch.
Despite that furious pace of price cuts, AWS revenue continues to grow in excess of 50% with expanding margins over the past several quarters and underscoring the demand that Amazon Web Services still enjoys in the market.
During the most recent quarter Amazon reported $3.231 billion in quarterly revenues while Microsoft's annualized cloud revenues exceeded $13 billion. At first glance, it would appear that both these companies are running neck and neck when it comes to earnings from cloud, but Microsoft has a huge bonus package in the form of its SaaS product, Office 365, which is experiencing strong growth.
Though Azure is certainly growing at a healthy rate, it has a long way to go before it can compete at the same level as the IaaS offering from Amazon. Amazon has no such SaaS product lineup but still leads the race in terms of revenue thanks to its strength in IaaS. The company's single-segment focus has helped Amazon add service after service and keep cutting prices, but still expand revenues - and margins along with it.
For now and for the foreseeable future, Amazon's AWS gets to keep the IaaS crown despite aggressive moves from Microsoft and IBM to expand their own cloud revenues in their own unique ways.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
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The intrinsic value of ORCL