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Equity Analyst, LightStream Research

Supun Walpola

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

<p>Over the past few years, <a href="https://www.smartkarma.com/entities/amazon-com-inc" target="_blank" data-smartkarma-citation="entities:409:1" rel="noopener">Amazon.com Inc (AMZN US)</a>’s and <a href="https://www.smartkarma.com/entities/microsoft-corp" target="_blank" data-smartkarma-citation="entities:15273:1" rel="noopener">Microsoft Corp (MSFT US)</a>’s valuations have been driven by their cloud businesses, AWS and Azure, respectively. However, despite declining revenue growth and margins, at an implied EV/Revenue multiple of 7.6x, we believe that the market is not valuing AWS at its full potential. On the other hand, at an implied EV/Revenue multiple of 30x-40x, Azure seems to be valued at a hefty premium, even at its higher (although declining) growth rate. Nonetheless, Azure’s better marginal profitability over AWS would be one of the key positives for Microsoft, as growth across developed cloud markets steadies.</p>

Over the past few years, Amazon.com Inc (AMZN US)’s and Microsoft Corp (MSFT US)’s valuations have been driven by their cloud businesses, AWS and Azure, respectively. However, despite declining revenue growth and margins, at an implied EV/Revenue multiple of 7.6x, we believe that the market is not valuing AWS at its full potential. On the other hand, at an implied EV/Revenue multiple of 30x-40x, Azure seems to be valued at a hefty premium, even at its higher (although declining) growth rate. Nonetheless, Azure’s better marginal profitability over AWS would be one of the key positives for Microsoft, as growth across developed cloud markets steadies.

Cloud Wars: AWS’ Declining Growth and Margins Vs Overvalued Azure