Time to Spin-Off AWS, Azure and GCP

Time to Spin-Off AWS, Azure and GCP

Given Snowflake’s rich valuation, it may be time for Alphabet, Amazon and Microsoft to spin-off GCP, AWS and Azure.

Snowflake priced its IPO yesterday and the stock closed up 112% to $253.93 for a valuation of approximately $70 billion. Assuming calendar year 2020 revenue of $500 million implies a MV/Revenue multiple of 140x. The combination of close comp Snowflake’s rich valuation and The Fed’s intention to hold interest rates near zero percent through 2023 suggest that Alphabet, Amazon and Microsoft could unlock value by spinning off their respective commercial cloud platforms.

In fairness, Snowflake is running revenue growth at approximately 132% which is substantially faster than the growth rates of AWS, Azure and GCP. However, it is also fair to note that Snowflake invested more in Sales & Marketing in fiscal 2020 than it generated in Revenue (Sales & Marketing was 111% of fiscal 2020 revenue and represents approximately 79% of Revenue year-to-date).

Let’s consider what standalone valuations may look like for AWS, Azure and GCP:

Click table to expand or download