A Couple Of Takeaways From Amazon's Latest 10-K Filing

Key disclosures in Amazon.com, Inc.’s AMZN latest 10-K relate to the mix of capex for Amazon Web Services and the mix of AWS owned and leased square footage.

“The capex disclosures reinforce our view that AWS is realizing material internal “cost structure productivity” gains,” Deutsche Bank’s Lloyd Walmsley mentioned, while explaining that of Amazon’s total P&E additions of $13.6 billion in 2016, $5.2 billion or 38 percent was for AWS, a decline from the 49 percent in 2015.

This equates to 11 percent growth in the AWS P&E additions, as compared to 9 percent growth in 2015.

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In addition, the depreciation expense for AWS rose 34 percent in 2016 to 28 percent of revenues, down meaningfully from the 33 percent in 2015.

“We conclude that (1) a smaller portion of total Amazon capex went to AWS in 2016, (2) AWS capex and depreciation expense growth are well below the AWS revs growth rate of 55 percent in 2016, driving operating leverage for AWS and capping the opportunity for 3rd-party tech suppliers,” Walmsley stated.

Data Center Capacity

The 10-K filing also showed that AWS data center capacity in terms of square footage rose by only 21 percent in 2016, of which 67 percent was leased by year end 2016, representing a decline from the 72 percent at year end 2015 and indicating 13 percent leased capacity growth in 2016.

“While perhaps not as high as some investors were hoping for at the start of 2016, 13 percent leased capacity growth from AWS is still driving demand for the data center REIT vendors,” the analyst explained.

Walmsley maintained a Buy rating on the company, with a price target of $1050.