#operating segments

In February we told you the tale of Amazon’s two main segments, where we looked at the Amazon (AMZN) retail segment (national and international) and AWS. In this piece we want to see how those two segments compare to similar businesses. We compare Amazon’s retail segments to Walmart (WMT) and AWS to Microsoft’s (MSFT) Intelligent Cloud.

Let’s start with the retail side. As we compare Amazon to Walmart, remember that Amazon FYE is Dec. 31, 2021, while Walmart FYE is Jan. 31, 2022. Walmart’s Sam’s Club segment is included in Walmart’s U.S. operations, and all amounts are in millions.

As you can see from the above table, Walmart’s operating profit margin is much higher than Amazon’s; so is Walmart’s return on operating assets (ROOA). Even Walmart’s asset turnover is higher for U.S. operations, and slightly lower for international operations.

We had seen before in our previous analysis that Amazon’s retail segments do not perform as well as AWS. Let’s see now how AWS stacks up to Microsoft’s Intelligent Cloud (IC).

As we compare Amazon to Microsoft, again remember that Amazon’s FYE is Dec. 31, 2021 while Microsoft’s FYE is June 30, 2021 (and again, all amounts in millions). Also, Microsoft does not allocate assets to segments for reporting purposes so ROOA and Asset Turnover cannot be calculated for Intelligent Cloud.

As you can see in the chart above, again Amazon does not compare favorably to Microsoft. Although AWS’s revenue is somewhat higher than Intelligent Cloud, Intelligent Cloud’s operating income is much higher.

We examined corporate filings for the week of March 8-15 to see what was being said about Russia. There were 291 firms mentioning Russia in their recent filings.

Where it was mentioned:

These mentions have a variety of stories behind them. Focusing on risk factors, some companies may have a general warning like Kronos Worldwide (KRO) who mention the Russia-Ukraine conflict in the context of “risks associated with global and regional economic, political and regulatory environments”.

Whereas others may be more specific, like Salesforce (CRM) which was concerned that “retaliatory cyber attacks stemming from Russia’s recent invasion of Ukraine, including ransomware and distributed denial-of-service attacks”, or IDT which has “significant number of R&D personnel in Belarus”, and are concerned about the impact on personnel and their work, or Century Casinos Inc. (CNTY) which were concerned about the impact of the conflict with Russia on “discretionary consumer spending”.

Subsidiaries

Examining the potential economic effects of the Russia-Ukraine conflict, we examined how many companies reported to have subsidiaries in those countries (listed in Exhibit 21 of the 10-K). In the annual 2021 filings, 192 firms listed at least one subsidiary in Russia, and 99 firms listed at least one subsidiary in Ukraine.

Segments

In addition to examining subsidiaries, the potential impact on companies could be examined by studying the segment data coming from the segments footnotes, and looking for companies that mention a segment that includes Russia. For example, Pepsico (PEP) reported almost $3.5B in revenue from Russia or ArcelorMittal (MT) who reported $4.1B in revenue from Ukraine.

Amazon.com is often on our mind here at Calcbench because it’s such a fascinating source of financial reporting nuance. In 2018 we told you about an SEC comment letter Amazon received, prodding the company about disclosing the number of Prime members. In 2020 we compared AWS (Amazon Web Services) to Microsoft’s Intelligent Cloud.

Today we want to look at Amazon’s ($AMZN) latest 10-K filing, which arrived on Feb. 4. Specifically, we want to examine the company’s segment footnote.

Amazon recognizes three operating segments: North America and International, which are both retail segments; plus AWS, its cloud-hosting segment. So for practical purposes Amazon really operates as two halves: its retail operations and AWS.

Let’s start by examining the trends in both revenue and operating income for the segments. As you can in the chart below, revenues for all three segments seem to be increasing substantially in the last three years.

At first glance this might look quite promising, but if you squint at the operating income numbers you see another story. Operating income has declined for both the North America and International segments (it’s actually negative for the International segment), and has increased for AWS.

This made us wonder: How significant is AWS for Amazon, in revenue and operating income? Very significant, apparently. As you can see from the charts below, although AWS accounts for only 13 percent of Amazon’s revenue, it accounts for 69 percent of the company’s operating income.

Fair enough, but more questions come next. Generating all that income requires assets, so how much Property, Plant, and Equipment (PP&E) do each of Amazon’s operating segments have? Well, Figure 3, below, shows that the North America segment has 52 percent of all PP&E, while AWS has only 27 percent.

Using operating income as a proxy for net income, and using PP&E as a proxy for operating assets, we can calculate the return on operating assets (ROOA) for each segment and the sales generated by those assets— a metric known as asset turnover.

As you can see in Table 1, below, AWS has an extremely high ROOA, but much lower asset turnover. That’s because AWS needs lots of hardware to support all that computing power.

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The goods has a market capitalization of 87.68 Slew, EPS is 0.01, P\E ratio is 9.21 and the dividend subsidize is 3.66% at the annual royalty payout pertaining to 0.00.<\p>

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The atelier purchases and sells stainless steel products, immature construction activities and vestment holding. It has eight running segments: distribution of clean dirk piping products, manufacturing regarding steel flanges, manufacturing referring to cleanroom face masks, engineering construction pertinent to peacetime mandamus stamp and environmental business. On March 30, 2012 the company handed over warehouse and office part located at 135 pioneers Main road, Singapore 639589 unto the Singapore Real property Authority. Ingoing July 2013, it acquired 35% interest of Shinsei Superinox Industry Pte. Ltd.<\p>

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Hiap Till Ltd (SGX: 5JK)<\p>

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5) KSB Pumps Limited (KSBPUMPS) is an India-based salon which is engaged entree the business of manufacture of power driven pumps and industrial valves. Its valves segment is engaged in manufacturing and trading of business valves and spares and services. It has a market capitalization of 7.31 Billion and currently paying a dividend yield is 3.33%.<\p>

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