At the end of November, Amazon (NASDAQ:AMZN) announced that BYD (OTCMKTS:BYDDY) had selected Amazon Web Services (AWS) as its preferred cloud provider for its connected vehicle platform. Amazon stock barely budged on the news.
You would think that the world’s leading manufacturer of new energy vehicles, including hybrid and battery-electric vehicles, would excite investors about AWS grabbing a big chunk of the connected vehicle industry. That’s potentially massive revenue once EVs get back on track.
Ah, yes, the EV industry is in a funk.
“Companies have collectively committed about $100 billion across North America to create electric cars that don’t just appeal to luxury buyers and early adopters, but to the mass market,” Bloomberg reported in early November.
“But high inflation and interest rates are making vehicle purchases difficult for everyday people, meaning it’s hard for EV makers to win their business. Auto executives have said they’re worried many consumers have hit their limit. “
Even the once hot-selling EVs, such as the Ford F-150 Lightning, aren’t rolling off car lots. Until that changes, all bets are off in the EV world.
So, the two questions to ask are as follows:
1) What would an announcement like this by AWS be worth to Amazon in dollars and cents?
2) What does this mean for AWS’ slowing growth?
BYD and Amazon Stock
Although I’m talking about the tangible dollar value of BYD using AWS for its connected cloud, there’s also the intangible value of such an association.
After all, BYD remains Berkshire Hathaway’s only automotive investment despite its selling off some shares in recent months.
Buffett may not be interested in certain businesses now, but it’s hard to understand why he would sell a stock that has generated substantial unrealized profits since 2008. Despite clear evidence of deceptive practices, it took him years to sell Wells Fargo.
If anyone practices “letting your winners ride,” it would be Buffett.
Getting back to the actual AWS spend by BYD, I’ve found an article from Cloudzero, a company dedicated to measuring the return on investment from your cloud spending. It’s from 2023. It analyzes how much spends for its AWS services, which, you can imagine, are immense.
It indicates that Netflix planned to spend $1 billion between 2019 and 2023 on AWS cloud services. That’s $200 million annually or nearly $17 million monthly. I can’t imagine BYD’s requirements would be anywhere near as high.
However, the figure above can’t be accurate. AWS revenue for the nine months ended Sept. 30 was $66.6 billion. Annualized, that’s $89 billion. If true, Netflix would represent 227% of its annual revenue.
So, for simplicity’s sake, let’s say Netflix spends $18 million a year, or about 20% of AWS’ annual revenue, and BYD’s will be 20% of the Netflix spend per year. That’s $3.6 million annually.
So, in terms of dollars and sense, it’s not a big deal.
BYD and AWS’ Slowing Growth
I recently discussed this question, pointing out that based on AWS’s expected annual revenue of $89 billion, year-over-year growth will be 11%, less than half the 29% increase in 2022. Further, its operating margin was also falling, diminishing the AWS moneymaker’s value slightly.
However, BYD could generate additional revenue for AWS through Amazon’s AI initiatives like Q. BYD’s expansion into AI requires a significant business relationship with AWS as it enters North America.
In 10 years, the AI component of AWS could be more significant than its cloud storage services, etc.
The more technologically advanced and innovative businesses such as BYD choose to work with AWS, the more other companies will do the same. So, it’s fair to say that the current revenues are a loss leader for AWS as it develops more significant revenue streams for the profitable segment.
So, to answer the second question, the BYD announcement should be beneficial to helping reignite AWS’ revenue growth back into the mid-to-high 20% range.
Amazon stock is a buy.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
