The idea that Amazon should spin out its massively profitable cloud business keeps coming up. Here's how that might work — and why it's very unlikely
This story requires our BI Prime membership. To read the full article,Calls to break up Big Tech have renewed speculation Amazon will spin off its multibillion-dollar cloud business Amazon Web Services into a separate company.
NYU Professor Scott Galloway, who correctly predicted that Amazon would buy Whole Foods, takes the stance that a spinout is coming: "I predict by 2025, the most valuable company in the world will be AWS." The company is slated to report quarterly earnings on Thursday after the bell. Wall Street is expecting Amazon to post earnings per share of $4.60 on revenues of $68.8 billion, which would be a nearly 22 percent increase over the same period of 2018.
Scott Galloway, the NYU professor who predicted Amazon would buy Whole Foods, in December said he expects Amazon will make AWS a separate business toAWS is important for Amazon. Research firm Morningstar recently estimated AWS is worth more than $550 billion on its own — more than half of Amazon's $873 billion market cap, at the time of writing. AWS is also the most profitable part of Amazon's business.
Warren in March revealed a plan which would require Amazon to spin out its private label brand from the rest of the company. She also pledged to appoint regulators to reverse mergers, including Amazon's Whole Foods buy, Facebook's acquisition of Instagram and the sale of Waze to Google. That eliminates some, but not nearly all, of the operational hurdles that would come with creating an independent AWS. This hypothetical company would have to hire its own board of directors, not to mention that it would likely have to staff up in fields like accounting and legal, where it could previously lean on Amazon.
A spin-off is an unlikely event, Hottovy said, but "incrementally slightly more likely to happen now" as more people in government call for breaking up Amazon.Spinning off AWS would be difficult, but not unheard of, Galloway – the NYU professor and marketing expert who famously predicted Amazon's Whole Foods acquisition – said. PayPal used to be the main payments provider for eBay and the companies figured out how to make it work when they split in 2015, he said.
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