An interesting valuation issue exists at Amazon, partly based on revenue growth expectations, profit margin potential, but also business model. Amazon’s two major lines of business are Amazon Web Services, at about 16 percent of sales, and the e-commerce and advertising operations, representing the bulk of Amazon sales volume.
Simply, AWS supplies all of Amazon’s net income.
AWS also arguably represents all of Amazon’s profit.
Amazon’s e-commerce operations clearly use a platform business model, while Amazon Web Services only uses that model for a portion of AWS operations, notably the marketplace for third-party app and software suppliers.
The valuation of these operations suggests that a platform business model does not, in and of itself, have a consistent value across all industries. Valuations can be higher or lower depending on the context.
AWS--which mostly is not a platform business model, might be valued at a software stock's valuation of 10 times sales. The e-commerce operations might be valued similarly to other retailers. Walmart and Target, for example, might be valued between 0.66 times sales up to 0.74 times sales.
Of course, buried within the e-commerce operations are other lines of business that should carry a different valuation. Amazon’s growing advertising operations, subscription services and third-party logistics and sales platforms, for example, should not be valued on a simple retailer basis.
Advertising-driven firms might be valued from three times revenue up to eight times revenue or higher, in some cases. So that portion of Amazon e-commerce that generates advertising revenue represents a different valuation than the simple e-tailing.
All that suggests that a platform business model does not carry with it an automatic higher or lower valuation than that same business operated in a traditional “pipeline” manner. Growth potential obviously has a greater impact.
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